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In economics, a commodity is an economic good or service that has full or substantial : that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded and derivative markets. Most commodities are , basic resources, or products, such as , , or .


Etymology
The word commodity came into use in English in the 15th century, from the French , "amenity, convenience". Going further back, the French word derives from the Latin , meaning "suitability, convenience, advantage". The Latin word (from which English gets other words including commodious and accommodate) meant variously "appropriate", "proper measure, time, or condition", and "advantage, benefit".


Characteristics
In economics, the term commodity is used specifically for economic goods or services that have full or partial but substantial ; that is, the market treats their instances as equivalent or nearly so with no regard to who produced them. Karl Marx described this property as follows: "From the taste of , it is not possible to tell who produced it, a Russian serf, a French peasant or an English ."Karl Marx, "A Contribution to the Critique of Political Economy" contained in the Collected Works of Karl Marx and Frederick Engels: Volume 29, p. 270. and are examples of commodity goods:
(2018). 9780130630858, Pearson / Prentice Hall.
their supply and demand are a part of one universal market.

Non-commodity items such as systems have many aspects of product differentiation, such as the , the user interface and the perceived quality. The demand for one type of stereo may be much larger than demand for another.

The price of a commodity good is typically determined as a function of its market as a whole. Well-established physical commodities have actively traded and derivative markets.


Hard and soft commodities
are goods that are grown, such as , or .

Hard commodities are . Examples include , , and .

Energy commodities include electricity, gas, and oil. Electricity has the particular characteristic that it is usually uneconomical to store, and must therefore be consumed as soon as it is processed.


Commoditization
occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, goods that formerly carried premium for market have become commodities, such as and DRAM chips. An article in The New York Times cites supplements as an example of commoditization; a 50 mg tablet of is of equal value to a consumer no matter what company produces and markets it, and as such, multivitamins are now sold in bulk and are available at any supermarket with little brand differentiation. Following this trend, are emerging from carrying premium profit margins for market participants to a status of commodification.C. McGovern, ″Commoditization of nanomaterials″. Nanotechnology Perceptions 6 (2010) 155–178.

There is a spectrum of commoditization, rather than a binary distinction of "commodity versus differentiable product". Few products have complete undifferentiability and hence fungibility; even electricity can be differentiated in the market based on its method of generation (e.g., fossil fuel, wind, solar), in markets where energy choice lets a buyer opt (and pay more) for renewable methods if desired. Many products' degree of commoditization depends on the buyer's mentality and means. For example, milk, eggs, and notebook paper are not differentiated by many customers; for them, the product is fungible and lowest price is the main decisive factor in the purchasing choice. Other customers take into consideration other factors besides price, such as environmental sustainability and animal welfare. To these customers, distinctions such as " versus not" or " versus not" count toward differentiating brands of milk or eggs, and percentage of recycled content or Forest Stewardship Council count toward differentiating brands of notebook paper.


Global commodities trading company
This is a list of companies trading globally in commodities, descending by size as of October 28, 2011.

  1. Glencore International AG
  2. Archer Daniels Midland
  3. Gunvor (company)
  4. Mercuria Energy Group
  5. Louis Dreyfus Group
  6. Wilmar International
  7. Olam International


Commodity trade
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 were considered equivalent. On a commodity exchange, it is the underlying standard stated in the contract that defines the commodity, not any quality inherent in a specific producer's product.

Commodities exchanges include:

  • (formerly GBOT)
  • Derivatives (MDEX)
  • Chicago Board of Trade (CBOT)
  • Chicago Mercantile Exchange (CME)
  • Dalian Commodity Exchange (DCE)
  • Euronext.liffe ()
  • Kansas City Board of Trade (KCBT)
  • London Metal Exchange (LME)
  • Marché à Terme International de France (MATIF)
  • (MEX)
  • Multi Commodity Exchange (MCX)
  • National Commodity and Derivatives Exchange (NCDEX)
  • National Commodity Exchange Limited (NCEL)
  • New York Mercantile Exchange (NYMEX)

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 and quantity. In addition, investors can gain passive exposure to the commodity markets through a commodity price index.

In order to diversify their investments and mitigate the risks associated with debasement of currencies, and sovereign wealth funds allocate capital to non-listed assets such as a commodities and commodity-related infrastructure.


Inventory data
The of commodities, with low inventories typically leading to more volatile future prices and increasing the risk of a "" (inventory exhaustion). According to economist theorists, companies receive a convenience yield by holding inventories of certain commodities. Data on inventories of commodities are not available from one common source, although data is available from various sources. Inventory data on 31 commodities was used in a 2006 study on the relationship between inventories and commodity futures risk premiums.Gorton GB et al. (2008). The Fundamentals of Commodity Futures Returns. Yale ICF Working Paper No. 07-08.


Commodification of labor
In classical political economy and especially in 's critique of political economy, a commodity is an object or a good or service ("product" or "activity"Karl Marx, "Outlines of the Critique of Political Economy" contained in the Collected Works of Karl Marx and Frederick Engels: Volume 28, 80.) produced by .Karl Marx, Capital, Volume I (International Publishers: New York, 1967) p. 38 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35 (International Publishers: New York, 1996) p. 48. Objects are external to man.Karl Marx, Capital, Volume I, p. 87 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 97. However, some objects attain "" to persons in this world, when they are found to be "necessary, useful or pleasant in life,"Aristotle, Politica (Oxford, 1966) p. 1257. "Use value" makes an object "an object of human wants,"Karl Marx, "Capital in General: The Commodity" contained in the Collected works of Karl Marx and Frederick Engels: Volume 29 (International Publishers: New York, 1987) p. 269. or is "a means of subsistence in the widest sense."Karl Marx, "Capital in General: The Commodity" contained in the Collected Works of Karl Marx and Frederick Engels: Volume 29'', p. 269.

As society developed, people found that they could trade goods and services for other goods and services. At this stage, these goods and services became "commodities." Commodities are defined as objects which are offered for sale or are "exchanged in a market."Karl Marx, Capital: Volume I p. 36 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 46. In the marketplace, where commodities are sold, "use value" is not helpful in facilitating the sale of commodities. Accordingly, in addition to having use value, commodities must have an "exchange value"—a value that could be expressed in the market.Adam Smith, Wealth of Nations (Pelican Books: London, 1970) p. 131 and David Ricardo, Principles of Political Economy and Taxation (Pelican Books: 1971, London) p. 55.

Prior to Marx, many economists debated as to what elements made up exchange value. maintained that exchange value was made up of , , and the costs of wear and tear on the instruments of husbandry.Adam Smith, Wealth of Nations (Pelican Books: London, 1970) p. 153. , a follower of Adam Smith, modified Smith's approach on this point by alleging that labour alone is the content of the exchange value of any good or service.David Ricardo, Principles of Political Economy and Taxation (Pelican Books: London, 1971) pp. 56-58. While maintaining that all exchange value in commodities was derived directly from the hands of the people that made the commodity, Ricardo noted that only part of the exchange value of the commodity was paid to the worker who made the commodity. The other part of the value of this particular commodity was labour that was not paid to the worker—unpaid labour. This unpaid labour was retained by the owner of the means of production. In capitalist society, the capitalist owns the means of production and therefore the unpaid labour is retained by the capitalist as rent or as profit. The means of production means the site where the commodity is made, the raw products that are used in the production and the instruments or machines that are used for the production of the commodity.

However, not all commodities are reproducible nor were all commodities originally intended to be sold in the market. These priced goods are also treated as commodities, e.g. human labour-power, works of art and natural resources ("earth itself is an instrument of labour"),Karl Marx, Capital: Volume I, p. 179 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 189. even though they may not be produced specifically for the market, or be non-reproducible goods.

Marx's analysis of the commodity is intended to help solve the problem of what establishes the economic value of goods, using the labor theory of value. This problem was extensively debated by , David Ricardo, Principles of Political Economy and Taxation (Pelican Books, London, 1971) pp. 56-58. and Karl Rodbertus-Jagetzow among others.

All three of the above-mentioned economists rejected the theory that labour composed 100% of the exchange value of any commodity. In varying degrees, these economists turned to supply and demand to establish the price of commodities. Marx held that the "price" and the "value" of a commodity were not synonymous. Price of any commodity would vary according to the imbalance of supply to demand at any one period of time. The "value" of the same commodity would be consistent and would reflect the amount of labour value used to produce that commodity.

Prior to Marx, economists noted that the problem with using the "quantity of labour" to establish the value of commodities was that the time spent by an unskilled worker would be longer than the time spent on the same commodity by a skilled worker. Thus, under this analysis, the commodity produced by an unskilled worker would be more valuable than the same commodity produced by the skilled worker. Marx pointed out, however, that in society at large, an average amount of time that was necessary to produce the commodity would arise. This average time necessary to produce the commodity Marx called the "socially necessary labour time"Karl Marx, Capital: Volume I, p. 39 and "Capital" as contained in the Collected Works of Karl Marx and Frederick Engels: Volume 35, p. 49. Socially necessary labour time was the proper basis on which to base the "exchange value" of a given commodity.

Value and price are not equivalent terms in economics, and theorising the specific relationship of value to market price has been a challenge for both liberal and Marxist economists. However, Marx held that the value and price of any commodity would coincide only when demand and supply were equivalent to each other.


See also


Notes

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