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What Are Commodities? - Definition, Types & Examples

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  • 0:00 The Definition of a Commodity
  • 1:35 Types And Examples Of…
  • 2:55 Lesson Summary
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Lesson Transcript
Instructor: Tara Schofield
This lesson explains what a commodity is, how the products are similar and how the pricing relates to commodities. Several examples of commodities are included.

The Definition of a Commodity

A commodity starts as any item that has a value. A more common understanding of a commodity is a product that is generic and has the same basic value as all similar items. For example, if you go to a gas station to purchase gas, the gas at your pump is the same as the gas at any of the other pumps. It's also relatively the same as the gas at the station across the street or across town.

There may be a very slight change in price, but the products essentially sell for the same basic price and are the same regardless of where they are purchased. When a person purchases natural gas to heat their home, they are charged a rate for the gas. It is not posted on their bill as different amounts based on where the gas came from. There is a stated fee for the commodity, and the bill is based on how much of the commodity was used.

Because commodities have very little differentiation, they are easily sold and traded throughout the world. For instance, if you purchase cantaloupe, one cantaloupe is not significantly different from another cantaloupe.

There are some efforts to try to create a difference in products based on where they were grown, but ultimately those efforts yield little success. There are a few commodities that have been effectively differentiated, such as Idaho Potatoes, California Cows, and Florida Oranges. Millions of dollars were spent in advertising to try to create consumer loyalty towards commodities from specific areas. However, most attempts have proven to be ineffective. A consumer in the grocery store will buy a carrot from Alabama just as quickly as a carrot from Washington without even noticing they were grown in different areas.

Types and Examples of Commodities

There are some basic types of commodities: grain, livestock, metals, soft products, and energy.

Grain commodities are very common commodities. Because of their limited growing cycles, grain commodities are typically available during growing seasons (spring and summer). Grain commodities include wheat, rice, soy, and oats.

Livestock commodities are animals sold for meat and food purposes. The most common livestock commodities include cows and pigs.

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