Commodities are goods that are more or less interchangeable. This includes goods that are physically almost identical and goods that are different but serve customer needs equally. Consumers of commodities almost always choose the cheapest item as they see no differences between suppliers. Producers of commodities have no pricing power and must accept a market price set by supply and demand. The following are basic examples of commodities.
AgricultureAgricultural products such as food and beverages. Some producers are able to create a unique agricultural product that isn't a commodity such as a fine wine or artisanal food.
MaterialsMaterials such as wood or concrete.
MetalsMetals such as gold function both as a material and as a form of money or investment. Historically, payments were often made with commodity-based money that had intrinsic value.
EnergyEnergy such as a kilowatt hour of electricity.
Global CommonsShared essential resources such as air and water. The value of global commons may be estimated to account for pollution and resource depletion. For example, if a factory produces a widget with a value of $1 that results in $4 pollution per widget, this isn't a productive economic process.
Products that customers view as the same such that they mostly buy the cheapest item. Firms work hard to develop brand image and quality that prevent this from happening. However, many industries slowly move towards becoming a commodity with time.Services that customers view as the same with purchase decisions based mostly on price. For example, a budget airline that can't sell many seats if they raise their price $10 above the competition on a particular route.
NotesIndividual producers and consumers typically have no influence over the price of a commodity. Both have to accept the market price. For example, it is generally impossible to buy gold at a price below the current market price.
This is the complete list of articles we have written about goods.
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