Final Goods

Download PDF

What are Final Goods?

Bookmark added to your notes.
View Notes

A final good, also known as consumer goods is a type of commodity that is used by the consumer to satisfy their current demand, rather than to produce any other further good. A final good can be a microwave or a bicycle which is consumed by the end consumer. In contrast, these intermediate goods are those which are further used in the production cycle like milk used further to make curd or other dairy products. When measured in national income and output, the term final goods only denote the newly produced goods. GDP excludes those items that are being counted in an earlier year to prevent double-counting of the same based on the resale of those items. Manufactured goods are different from raw materials, the manufactured goods consist of both intermediate goods and final goods.

In this study of goods, we will also include the study of services. Being an economist includes the study of services under the terminology of goods. 

Example of Final Goods 

Final goods are ultimately consumed. We do not further use any final good for the production of something else, rather precisely said, we do not use the final goods for the production and ‘sale’ of other goods. The production of the final good comes to a halt in the production cycle. The next step after this is consumption. 

The goods which we further use in the production of these final goods are ‘intermediate goods.’

For example, a rayon shirt is a final good, but the material rayon (fabric) is an intermediate good.

We use the ‘textile’ (intermediate good) to make something else, that is for the production of a shirt (final good). However, we consume the end of this final good that is the shirt, that is, we wear it. We do not use the shirt in the further production cycle.

Final Good and GDP

While calculating the national income and the output, that is when we calculate the GDP, final goods are only considered as new goods. GDP is the gross domestic product that is produced in a country.

For example, GDP will not include items that we counted in previous years while they were in production stages. We do not want to count them twice, that is to do double counting.

When calculating this GDP, the term ‘final goods’ includes not just the final or new products, but also the services.

Final Goods and Services 

A final good is a product which the final consumer uses or consumes. The good or the product does not require any additional or further processing. A company will make a final good for they can be used directly by the final consumer.

The final consumer is the person or an entity who consumes or uses the product or service. We also call this person the ultimate and final consumer.

So, the term ‘consumer goods’ is a synonym for ‘final goods.’

A good is something the consumers buy. Hence, the term related to ‘consumer goods.’ A ‘good’ is a ‘product.’

“A final good is an item that is produced for the direct use by the end consumers. Final goods are also referred to as the consumer goods.”

Put simply; the term refers to any commodity which a company produces and a consumer subsequently consumes the good. The consumer consumes it to satisfy his or her current demand.

Goods Meaning in Economics 

Good in economics is literally any object or product (that is the factors of production) which is useful. While a commodity is one kind of good.

A good which cannot be used by the consumers directly, like an office building or any capital equipment, can be called a good as it can be useful if this is sold. A 'good' in economic usage does not necessarily mean that the object is good in a useful sense.

If an object or service is sold for a good price, then it is good since the purchaser considers the utility of that particular object or service more than the value of money. Some things are useful but not scarce like air and are thus referred to as free or common goods. 

In Macroeconomics and Accounting, a good is different from a service. A good here is defined as a physical product that one can deliver to the buyer. The service is not an object, but an action which benefits someone, that it is valuable to buy the service with a price. A more general term that preserves the distinction between goods and services is the term 'commodities'. In the Microeconomies view, 'good' is often used in this more inclusive sense of a commodity.

FAQ (Frequently Asked Questions)

1. Define GDP.

Ans. GDP is defined as a final value of the goods and services that are produced within the geographic boundaries of a country in a specified period of time, normally in a year. The GDP growth rate proves to be an important indicator of the economic performance of a country.

The Gross domestic product (GDP) is the total money or the market value of the finished goods and services which are being produced within a country's borders in a specified time period. As a broad-measures of this overall domestic production, the function is a comprehensive scorecard of any country’s economic health.

2. What are Free Goods? Does it Not Carry an Economic Value?

Ans. A free good is a good with generally zero opportunity cost. This means that it can be consumed in much quantity as is required without reducing its availability to other consumers. A free good contrasts with an economic good which does have a value, an economic good has an opportunity cost. 

Free goods like air, water, intellectual ideas are all free goods that do not charge any price. They do not have an economic value till they are not scarce. Once the consumers face scarcity of water they will start charging for water. 

3. Define Macroeconomics.

Ans. Macroeconomics is that branch of economics that studies the behavior and the performance of an economy as a whole or as an aggregate. This study focuses on the aggregate changes in the economy like the unemployment rate, growth rate, gross domestic product, and inflation.