What is the difference between product and commodity?

Answer 1

A commodity is still a product, but it's one sold primarily on price. It's also one sold primarily business-to-business.

Example: if you have a ton of wheat, you have a commodity; if you grind the wheat into flour and make bread out of it, you've turned it into a product.

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A commodity is anything that comes from multiple sources and is "traded" on some sort of market or exchange by those who produce, consume or wish to speculate in the commodity contracts which are created by those who have the physical product. The commodity market is a way of "securitizing" or quantifying the bulk product and applying a set of rules to the buying and selling. The exchange defines a "contract", usually by size for example 5000 bushels of wheat, 500 oz of gold, or 5000 American dollars, or 5000 gals of heating oil, or 1000 Swiss Francs. The exchange provides a way to track the contracts and assure the honest dealings for the buyers and sellers.

A product is usually sold in a commodity system when there are multiple suppliers and multiple consumers competing for that product and usually financial speculators. Consumers will buy commodity contracts to guarantee their supply and price, producers or those holding the product use the commodity system to gain the highest cost via the commodity "auction-like" marketplace. In the middle are those who speculate on the value never intending to take physical possession of the product. As the contracts move through the market there are often storage costs ad other costs that make it attractive for the producer to sell the product at whatever price the market will offer.