What is the way economics distinguishes between items that people buy to use/keep, and people just buy to sell at a higher price to other sellers? I see both referred to as “commodities”, and both have “intrinsic value” (People will pay for them), but they seem clearly different to me.

Question

What is the way economics distinguishes between items that people buy to use/keep, and people just buy to sell at a higher price to other sellers? I see both referred to as “commodities”, and both have “intrinsic value” (People will pay for them), but they seem clearly different to me.

In: 39

Answer 1

Commodities are fungible, by which economists mean that there is little to no differentiation between different providers. It’s possible for the same broad category to contain both commodities and non-commodities. Consider underwear. If you’re buying it in a 6-pack at Walmart, you’re purchasing a commodity where the only differentiation tends to be price. If you’re buying it at a lingerie store, there are design considerations that make it non-fungible.

Intrinsic value refers to a value calculated from underlying assets (it has nothing to do with “people will pay for them”). Your car has an ‘intrinsic value’ from the steel and plastic that goes into it. Intrinsic value is normally used as a practical floor for the cost of producing a good.

In general, commodities have high intrinsic value compared to their price while goods with low intrinsic value are more suited to high profits from speculation.