Definition of Commodity

A commodity is something for which there is demand, but which is supplied without qualitative differentiation across a given market. Characteristic of commodities is that their prices are determined as a function of their market as a whole. Well-established physical commodities have actively traded spot and derivative markets. Generally, these are basic resources and agricultural products such as iron ore, crude oil, coal, ethanol, sugar, soybeans, aluminium, rice, wheat, gold and silver. However, the process of commoditization is ongoing as markets evolve. In essence, commoditization occurs as a good or service becomes undifferentiated across its supply base by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. As such, many products which formerly carried premium margins for market participants have become commodities, such as generic pharmaceuticals and silicon chips. Linguistically, the word commodity came into use in English in the 15th century, derived from the French word "", similar in meaning to "convenience" in terms of quality of services. The Latin root meaning is commoditas, referring variously to the appropriate measure of something; a fitting state, time or condition; a good quality; efficaciousness or propriety; and advantage, or benefit. The German equivalent is die Ware, i.e. wares or goods offered for sale. The French equivalent is "produit de base" like energy, goods, or industrial raw materials.