Commodity

In economics, a commodity is a basic good or service that cannot be differentiated from a product of the same type emanating from another producer – it is interchangeable with that product. Wherever encountered, the market treats the commodity (whether a good or service) as equivalent irrespective of manufacturer or country of origin. Examples include agricultural products (sugar, rice, wheat), raw materials (copper, iron, aluminium), steel and so on.

A kilogramme of copper of a specific purity cannot be differentiated from any other kilogramme of copper of the same purity, whether by mine, country of origin or smelter. This general lack of distinction means that commodities are usually sold on the basis of price which will be determined by market value.

This quality of having little or no differentiation is called ‘fungibility’, and commodities are either fully- or substantially fungible. A further quality is that commodities are usually the basis for making other goods or services.

In contrast to commodities, goods such as cars may be highly differentiated in the market based on criteria such as the manufacturer, design, features, fuel consumption, etc.

In recent years, the definition of a commodity has expanded to include currencies, indexes, phone minutes and bandwidth.

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