Intermediate goods are referred to as goods that are used by businesses for producing goods or services. These goods are also known as producer goods.
In other words, intermediate goods are used for producing final goods or consumer goods. It can also be said that they act as inputs in other goods and constitute the final goods as ingredients.
Intermediate goods can be produced by a company for the creation of final goods or finished goods, or they can be sold by the company to some other business that deals with the production of final goods.
These goods are also known as semi-finished goods. Intermediate goods can be used in three ways, which are as follows:
- Producing and using for self
- Producing intermediate goods and selling them to other businesses
- Being purchased by companies for a specific use or for creating other intermediate products
Intermediate goods can become a part of the final product, or they may get changed beyond recognition during the production process of creating finished goods.
Points on Intermediate Goods
- They are purchased by one production unit from another production unit. These goods stay within the production boundary.
- These goods have derived demand, as their demand depends on the demand for the final goods.
- The value of these goods is added with the value of the final goods.
Intermediate Goods and Gross Domestic Product
Intermediate goods are not included in the calculation of a country’s GDP. The reason for not including them in the GDP is because it will lead to counting the value of the goods twice, and the norm is to count the price of final goods only once.
How to Classify Goods as Intermediate and Final Goods
The best way to classify goods as intermediate or final goods is done on the basis of the use of that product and not on the basis of the product itself.
Any commodity based on its nature of use can be either classified as a final good or an intermediate good.
This can be understood better with the help of an example.
Salt is used for making bread and salt used for direct consumption also. Here, salt is an example of how it becomes an intermediate good and a final good as well.
Here, the salt used in the preparation of bread acts as an intermediate good while salt used for direct consumption is classified as a final good.
This explains the concept of Intermediate Goods. It will help students to develop a good understanding of the types of goods in economics. To read more such interesting concepts on economics for Class 12, stay tuned to BYJU’S.