Definition
An intermediate good or consumer good is a product that is used to produce finished goods or products. Some intermediate goods can be directly used without further processing in the industry to make another product or the same goods can be used for producing another good. For example, salt can be used directly by the consumers or it can be further processed by different industries to make other products such as in the glass manufacturing industry.
Since these intermediate products can be further used in the production of other goods, they are referred to as “semi-finished products”. In other words, they become inputs in the production of another product. In this article, students will learn about what makes intermediate products different from final goods, and the examples and cost of production of intermediate goods.
Final Goods vs Intermediate Goods
Final Goods:
In simple words, final goods are the finished products of production which are ready for consumption or reinvestment.
In terms of customer consumption, final goods are those goods that are purchased for consumption such as milk. Although milk can be industrially processed to make other products such as curd or sweets as a final good, milk is used for consumption.
In terms of industrial usage, goods that are used by firms as capital formation or investment such as machines produced from one firm and purchased by another for which it is a final product.
Intermediate Goods:
Those goods that are meant for resale or reuse in the same accounting year are intermediate goods.
Example of resale of intermediate goods: milk purchased by a retailer for selling to the customers.
Example of reuse of intermediate goods: milk purchased by sweet shops to make sweets.
Examples of Intermediate Goods
It is to be noted that intermediate goods are not the same as capital goods. Machinery, land or tools that are used as factors of production are regarded as capital goods. Capital goods are not included in the final product but intermediate goods can be included in the final product.
In building a house, the radial saw used to cut wood is a capital good while the plywood used in the flooring is an intermediate good. The house is the final product.
Cost
Intermediate goods are the links between the raw materials and the final products in a production process. They are also seen as inputs. Therefore, these goods have an additional value that cannot be classified with raw materials.
FAQs on What Are Intermediate Goods? Explained
1. What are Finished Products?
A finished Product can be defined as the final product that has undergone all the stages of production, which includes packaging in its final container. The specifications that are for the release of the finished product need to comply with the FDA regulations.
The finished goods are the goods that have completed the required manufacturing process and are ready to be fitted or mixed or processed with the final product. This final product itself could also be called the finished goods. Examples are cars, clothing, food, furniture, etc.
2. Define Consumption.
Consumption is to be defined as the use of goods and services that are primarily used by the household sector. This is a component in the calculation of the Gross Domestic Product (GDP).
Consumption, in economics, means the use of goods and services by the households. Consumption is different from consumption expenditure. This is the purchase of the goods and services that are used by the households.
The definition of the word consumption is buying and using something. An example of consumption is eating a snack and some pastries.
3. What are Capital Goods?
Capital goods are mostly tangible assets, the capital goods are physical in nature. These capital goods are the assets that companies used to produce the products of other businesses which can be used to create the finished goods. Manufacturers of automobiles, aircraft, and machinery fall within the definition of the capital goods sector as these products are subsequently utilized by the companies who are involved in manufacturing, shipping, and providing other services. In other words, these capital goods do not create satisfaction for the buyer, instead, they are used to produce the final product, and this final product does create satisfaction.
4. Define intermediate goods of production.
Intermediate goods of production are products that are used in the process of production to make other goods, usually the final goods of production. Intermediate goods can also be finished products such as salt which can be directly sold to consumers or used for the further production processes for manufacturing other kinds of consumer goods. Intermediate goods are usually sold between industries for resale or production of other goods.
5. How are intermediate goods different from final goods?
Intermediate goods can be distinguished from final goods based on the usage of the product and not on the type of product. For example, sugar can be used as an intermediate good for making sweets but when sold to customers directly for household usage, it becomes a final good. In short, if the ultimate usage of a product is a further investment or direct consumption then it is a final product.
6. Are intermediate goods the same as capital goods?
No, intermediate goods are not the same as capital goods. Intermediate goods are consumed in a process of production, for example, the flour used by a baker, but capital goods are those goods that are used for further production, for example, the machine used for making the dough of the bread using flour is a capital good.
7. Give an example of intermediate goods used for further production.
An apple bought at a grocery store by a customer is an interview good as it will be consumed without putting it to further use. If the same apple is processed further to be sold as apple juice then the apple does not remain an intermediate good, it becomes a final good.
8. What are intermediate goods used for?
Intermediate goods are used in the process of production of another product which is ultimately consumed by customers. Therefore, intermediate goods do not lead to the end products of a production process, instead, they are the links between the raw materials and the final products of production.
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