What is Commodity ?
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18 AUG 2007
A. When an economist, economics professor, or economics textbook talks about a
commodity, they mean a good that possesses the following properties:
usually produced and/or sold by many different companies
Is uniform in quality between companies that produce/sell it. You cannot tell
the difference between one firm's product and another. .
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Lumber, oil, and electricity could all be considered commodities, while
Levi's jeans would not be, as consumers consider them to be distinct from
jeans sold by other firms. Economists call this distinctness "product
differentiation".
In textbook examples commodities are usually sold for their marginal cost
of production, though in the real world the price is often higher, due to
factors such as barriers to entry and firm specific talents (perhaps one
firm is more adept at growing oranges than another).
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