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 today's (2000) "convenience" in term of quality of services. 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. The French equivalent is "produit de base" like energy, goods, industrial raw materials.<>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: commodities from the financial world include oil (sold by the barrel),electricity (most users of electric power are only concerned with overall energy consumption; only a minority of users are concerned with the quality and technical details of voltage and frequency deviations, phase imbalance, etc.),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.Microeconomists also include labor, and currency as commodities that can be bought and sold.

Examples

Wheat is an example of a commodity. 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 unmodified wheat. 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 commodities 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.