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Intermediate Goods vs Final Goods

  • Vrinda Mathur
  • Jun 09, 2022
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Intermediate goods are items that are utilized as a component of production to create commodities that can satisfy demands. They go through the manufacturing process for this reason. End products, on the other hand, are items that are easily accessible for sale to the final consumer of the product. 

 

 

What are Intermediate Goods?

 

An intermediate good is a semi-finished product that is used as an input in the manufacturing of other commodities that become final goods. Because intermediate products are an essential component of the manufacturing process, they are sometimes referred to as producer goods. 

 

The intermediate good will be turned into another product during the manufacturing process, either another intermediate good or a final good supplied to the end user.

 

An intermediate good is a product that is used to make a final good or finished product, often known as a consumer good. Intermediate commodities, such as salt, can also be finished products because they are consumed directly by customers and utilized by manufacturers to make other food items.

 

Intermediate commodities are traded between industries for resale or use in the manufacture of other items. These items are also known as semi-finished goods since they are employed as inputs to create the completed product.

 

Since intermediate goods are critical to the manufacturing process, they are also known as producer goods. Industries exchange these items for resale or to make other goods. When they are utilized in the manufacturing process, they undergo a transformation.

 

For the usage of intermediate products, there are normally three possibilities. A manufacturer may create and utilize their own intermediate items. 

 

The producer may also manufacture the items and subsequently sell them, which is a typical approach across sectors. Companies purchase intermediate products for specialized purposes in the production of either a secondary intermediate product or the completed commodity. 

 

All intermediate items are invariably either a component of the final product or are entirely reconfigured during the manufacturing process. Car engines are an example of an item that is created and then utilized as an input by the manufacturer to create finished goods. 

 

Some vehicle manufacturers will build their own unique car engines and then utilize them as inputs into autos that are then sold to consumers.

 

Steel, which is used in the completion of buildings, bridges, cars, and trains; wood, which is used in the construction of homes, to make furniture and hardwood flooring; precious metals such as gold and silver used in the production of jewelry; and glass, which is used in the production of windows, ornaments, wine bottles, and photo frames are just a few examples.

 

Also Read | Economic Indicators: Types and Examples


 

How Do Intermediate Goods Work?

 

Intermediate products may be transformed more than once before becoming a final product, and numerous intermediate goods may be used in the manufacture of a single consumer item. 

 

Service is sometimes included among the intermediate commodities that go into the final product. A live musician, for example, may be called an intermediate good because the end output is the music they generate.

 

Intermediate items are not included  in a country's gross domestic product because they would be included twice: once when they were purchased or sold as-is and again when the final consumer product was sold. The value-added approach is a system for calculating how much intermediary items contribute to a country's income. This approach determines the worth of a product at each step of manufacturing.


 

What are Final Goods?

 

A final good, also known as consumer goods, is a commodity that is utilized by the user to meet their immediate needs rather than to manufacture another good. A final good is anything that is consumed by the end user, such as a microwave or a bicycle. 

 

These intermediate commodities, on the other hand, are those that are employed later in the manufacturing cycle, such as milk that is used to produce curd or other dairy products. When assessed in terms of national revenue and production, the phrase final products exclusively refers to freshly manufactured goods. 

 

GDP eliminates things that were counted in a previous year to avoid multiple counting of the same items based on resale. Raw resources are not the same as manufactured items.

 

A final good is a product that is used or consumed by the end consumer. There is no more processing required for the good (product). A corporation creates a finished product for the ultimate consumer's direct usage.

 

The person or entity who consumes or utilizes a product or service is referred to as the end consumer. This individual is also known as the ultimate consumer. The phrase "consumer products" has the same meaning as "final goods."

 

If utilized by households, food, gasoline, clothes, and televisions are examples of final products. The final product might be either durable or non-durable. Non-durable items include food and petroleum, which are used within three years. Clothing and televisions are considered long-lasting since they last more than three years. 

 

Consumer spending accounts for the majority of the gross domestic product (GDP), thus economists must precisely evaluate it when assessing the economy's health. Because they are eaten by the ultimate user, final commodities are also known as consumer goods.

 

Intermediate goods are items utilized in the production of a finished product. Cotton is an example of an intermediate good since it is utilized as a fabric in a shirt.

 

This would cause the GDP to be overstated since they would be counted twice: once as an intermediate good and again as a final good. Resold final products, such as secondhand vehicles or furniture, are not included in consumer expenditure, despite the fact that the second user is the final user.

 

When resold things were sold to the original customer, they were tallied (new). Including them again would result in an overestimation of the economy's output.

 

Final goods are only counted as new goods for computing national income and production, i.e. when calculating GDP. GDP is the gross domestic product (GDP) of a country.

 

GDP, for example, will not include products that we included in past years while they were in the manufacturing process. We don't want to count them twice, or double count them. When measuring GDP, the word "final goods" includes not just finished or new products, but also services.

 

The market value of newly manufactured final items during the year must be quantified in order to calculate Gross Domestic Product.

 

Consumer Goods and Capital Goods are the two subcategories of Final Goods:

 

Consumption Goods : Consumption Goods include goods such as food and clothes, as well as services acquired for consumption. It is also known as consumer products and can be either durable or non-durable in nature.

 

Capital Goods: Durable tools, equipment, and machinery that aid in the manufacturing process but are not converted. These items are known as capital goods, and they depreciate with time. These commodities are acquired by industries and businesses in order to facilitate production and sustain capital stock.

 

Also Read | Economic Value Vs Market Value


 

Intermediate Goods vs Final Goods

 

The term "final goods" refers to items that do not require additional processing. These commodities, often known as consumer goods, are manufactured for direct consumption by the end customer.

 

Intermediate products are items that are utilized by businesses in the production of goods or services. These items are also referred to as producer goods.

 

In other words, intermediate goods are employed in the production of final products or consumer goods, or they function as inputs in other commodities, forming the final goods as an ingredient.

 

Let us now examine the distinction between final goods and intermediate goods.


            BASIS 

FINAL GOODS 

INTERMEDIATE GOODS 

Meaning

Final goods are items that are utilized for either consumption or investment.


 

Intermediate products are those that are utilized for resale or further manufacture in the same year.

Nature

Final products are completed items.

Intermediate products are commodities that have been partially prepared and are also known as unfinished goods or partially completed goods.

The Effect on National Income

Final products are regarded to be a component of national income and have an influence on it.


 

Since intermediate items are not included in national income, they have no influence.

Demand

They have a direct demand since they directly satisfy demands.

They have derived demand since their demand is determined by the demand for finished items.

Addition of value


 

They are ready for use by their intended users, which means that no value has to be added to the finished items.

They are not yet ready for use, implying that some value must be added to the intermediate items.

Production Limit

They have crossed the production boundary.

 

They are still within the production boundary.


Also Read | What is the Consumer Market?

 

Intermediate items are not long-lasting. The manufacturer provides such commodities to industries for resale after some value addition.These are raw or semi-raw items that are utilized as inputs in the process to be changed into another form. As a result, intermediate items play an important part in the manufacturing process.

 

A final good is a product that is ready for consumption, either to satisfy the desires of the customer or to be utilized as an investment by the makers.

 

In layman's words, final products are items that are offered for purchase by the consumer with no intention of physically transforming them or using them as a resource in the manufacturing process. As a result, they are manufactured in order to be sold to the final customer through various channels of distribution.

 

So, based on the above explanation, it is evident that whether an item/product is intermediate or final good is determined by its usage.

 

Furthermore, there are some items that are both intermediate and final goods, such as salt and sugar, which may be used as a component in the production of another product as well as directly consumed by families.

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