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Commodity

The word commodity is a term with distinct meanings in business and in Marxian political economy. For the former, it is a largely homogeneous product, whereas for the latter, it refers generically to wares offered for exchange.

Linguistically, the word commodity came into use in English in the 15th century, being derived from the French word "commodité" meaning "benefit, profit", similar in meaning to biens (goods). The Latin root meaning is commoditas, referring variously to the appropriate measure of something; a fitting state, time or condition; a good quality; efficaciousness or propriety; and advantage, or benefit. The German equivalent is die Ware, i.e. wares or goods offered for sale.

Definition
In the world of business, a commodity is an undifferentiated product whose value arises from the owner's right to sell rather than the right to use. Example: commodties from the financial world include oil (sold by the barrel), electricity, wheat, bulk chemicals such as sulfuric acid, base and other metals, and even pork-bellies and orange juice. More modern commodities include bandwidth, RAM chips and (experimentally) computer processor cycles, and negative commodity units like emissions credits.

In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any quality inherent in the product. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one can use the food without having to look at it too closely.

Commodities exchanges include:
• Chicago Board of Trade
• Euronext.liffe
• London Metal Exchange
• New York Mercantile Exchange

Microeconomists also include labor, and currency as commodities that can be bought and sold.

Wheat is an example of a comodity. Wheat from many different farms is pooled. Generally, it is all traded at the same price; wheat from farm A is not differentiated from wheat from farm B. Some uniform standard of quality must necessarily be assumed. There may be various standards leading to different pools: one say for genetically modified wheat, and one for not. Failures to match the consumer's assessment of risk and usefulness for some purpose, can lead to lower prices or the necessity of dividing the market into different pools, a very major issue in agricultural policy.
Markets for trading comodities can be very efficient, particularly if the division into pools matches demand segments. These markets will quickly respond to changes in supply and demand to find an equilibrium price and quantity.

See also:
Commodity markets
Commodity form theory
List of traded commodities
Commodity computer
Gold as an investment
Property
Trade
Law of value
Simple commodity production
Use value
Exchange value
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This article is licensed under the GNU Free Documentation License.
It uses material from the Wikipedia article "Commodity".