What Is a Commodity?

Question: What Is a Commodity?

Answer: When an economist, economics professor, or economics textbook talks about a commodity, they mean a good that possesses the following properties:

• usually produced and/or sold by many different companies
• Is uniform in quality between companies that produce/sell it. You cannot tell the difference between one firm's product and another.

Lumber, oil, and electricity could all be considered commodities, while Levi's jeans would not be, as consumers consider them to be distinct from jeans sold by other firms. Economists call this distinctness "product differentiation".

In textbook examples commodities are usually sold for their marginal cost of production, though in the real world the price is often higher, due to factors such as barriers to entry and firm specific talents (perhaps one firm is more adept at growing oranges than another).

Commodity Resources

Exchange Rates and Commodity Prices
Commodity Prices
Commodities and Other Futures