What is a Commodity
A Commodity is basically defined as the food product which is easily available in any part of the country such as the commodity of the America is corn while the commodity of India is rice. But if you find the term commodity in any book of economics, or by any economist, the meaning of the word will change. Then the term commodity will specify any market item which will be necessary to fulfil the needs of the society or human itself.
The more convenient meaning of commodity is that it is used to describe a type of product for which there is a need among the people. The price of such items are same everywhere and may vary on the basis of the needs and availability. The term commodity is basically use in the field of food products. Its price can be determined by the functioning of market.
Commodities are valuable things which have uniform quality. They can be produced at a very large scale by different production companies or organization. Commodities can also be interchange at national or international level as per the necessity of the region. A society can exchange different goods and services in exchange of another goods and exchange. This is known as Commodity Exchange.
Some examples of the commodities that can be exchanged are petroleum, electricity, and various food products. Products such as clothing cannot be considered as commodity as they are not the products which any country or region are suffering from shortage.
Commodity can also be defined as different products which are produced or can be sold by different producers or companies. The goods or services produced by different companies cannot be differentiated i.e. one cannot distinguish a good produced by two different companies.
Generally a commodity must be sold on its marginal cost of producing that good. But nowadays, the prices of commodities are much higher than the marginal cost. This is because of some resistance in between the process of producing and up to the selling process of that product.
The companies or any individual who gets orders of buying or selling of any products as per the need of the customers are known as Commodity Brokers. And the money which is earned by the commodity in the process of selling is known as Commodity Money.
The commodities are traded across the world in every corner of the nations through commodity exchange such as Chicago Mercantile Exchange (CME), Kuala Lumpur Futures Exchange (KLFE), International Indonesian Forex Exchange Market (IIFCM), and several others. However, the commodity exchange in the markets is totally open and transparent and there are many chances of fraud and the product misuse. To prevent these demerits, the government has setup The Commodity Futures Trading Commission (CFTC) that is always aware of the functions going on in the commodity exchange.