What Are Intermediate Goods? (With Examples)

Intermediate goods, producer goods or semi-finished products are goods, such as partly finished goods, used as inputs in the production of other goods including final goods.[1] A firm may make and then use intermediate goods, or make and then sell, or buy then use them. In the production process, intermediate goods either become part of the final product, or are changed beyond recognition in the process.[2] This means intermediate goods are resold among industries.

Intermediate goods are not counted in a countrys GDP, as that would mean double counting, as the final product only should be counted, and the value of the intermediate good is included in the value of the final good.[3] U.S. and Chinese Trade in Goods with ASEAN Countries by Use, 2014

The value-added method can be used to calculate the amount of intermediate goods incorporated into GDP. This approach counts every phase of processing included in production of final goods.

Characterization of intermediate goods as physical goods can be misleading, since, in advanced economies, about half of the value of intermediate inputs consist of services.[4]

Intermediate goods generally can be made and used in three different ways. First, a company can make and use its own intermediate goods. Second, a company can manufacture intermediate goods and sell them to others. Third, a company can buy intermediate goods to produce either secondary intermediate goods or final goods.

What is INTERMEDIATE GOOD? What does INTERMEDIATE GOOD mean= INTERMEDIATE GOOD meaning & explanation

How do intermediate goods work?

Intermediate goods might undergo more than one transformation before becoming a final product, and several intermediate goods can go into the production of a single consumer good. Sometimes, the intermediate goods that go into a final product include service. For example, a live musician could be considered an intermediate good because the final product is the music they create.

Intermediate goods are not calculated into the gross domestic product of a countrys economy because if they did, they would be counted twice: once when they were bought or sold as-is and again when the final consumer product was sold. A strategy called the value-added method is used to calculate how much intermediate goods contribute to a countrys income. This method determines a products value during every production stage.

What are intermediate goods?

Intermediate goods are unfinished items that go into the production of other items. They are changed, combined or otherwise modified before becoming a final product that the customer buys. For example, a hard drive is an intermediate good that goes into the production of a computer. Intermediate goods can also sometimes be sold directly to the consumer as final goods.

Some companies make and use their own intermediate goods, some make intermediate goods to sell to other industries and some purchase intermediate goods for use in their final products. This is why they are also sometimes referred to as producer goods.

Examples of intermediate goods

Intermediate goods include all items that are manufactured and traded to be transformed into a different final product for the consumer. Some examples of intermediate goods include:

Many of these intermediate goods can also be sold directly to the consumer as a final product. They are considered intermediate goods when they are used to produce another distinguishable item for sale. For example, if someone buys wood to build a bookcase, then the wood is a final product. If someone buys a bookcase, then the wood that goes into it would be an intermediate product that helped produce the final product.

Intermediate goods vs. capital goods

Intermediate goods are different from capital goods, although both kinds of items contribute to the production of a businesss final consumer goods. Intermediate goods are most easily recognized as the consumable items that go into the production of a product, such as the steel that goes into a car or the salt that goes into potato chips. Capital goods, however, are items that are required to support the production process. For example, the robotic arm used in making cars and the conveyor belts used to process potato chips are considered capital goods.

Capital goods also include items that people use to provide a service as a final product. For example, a barbers shears or a web designers computer would be considered capital goods.

Sometimes, economists sort capital goods into three categories in their calculations: durable, nondurable and service. Durable capital goods last longer than three years, nondurable capital goods last less than three years and service goods are consumed at the same time they are created (such as a haircut.)

Intermediate goods vs. consumer goods

Final goods are also sometimes referred to as consumer goods. Consumer goods differ from intermediate goods in that they comprise the intermediate goods that went into their manufacturing. When someone purchases a consumer good, the intention is for that product to be used by the buyer and not as an element of further manufacturing. Examples of consumer goods include cars, computers and power tools.

Just as intermediate goods can sometimes overlap with final goods, so can one item be both a consumer and a capital good. For example, a vehicle that is purchased by a courier service for business use would be considered a capital good, whereas a vehicle purchased by a family for personal use would be a consumer good. The difference between capital and consumer goods often depends on how that item is being used more than the item itself.

FAQ

What are examples of intermediate goods?

What Is an Intermediate Good? An intermediate good is a product used to produce a final good or finished product—also referred to as a consumer good. Intermediate goods—like salt—can also be finished products, since it is consumed directly by consumers and used by producers to manufacture other food products.

What are intermediate goods in trade?

Some examples of intermediate goods include:
  • Salt: Salt is considered an intermediate good because it is included in the final product of many food and non-food items.
  • Wheat: Like salt, wheat is an intermediate good because it is processed to be used as part of another product, usually food or food-related.

What are intermediate and final goods?

What Are Intermediate Goods? The goods covered by trade statistics can be subdivided into three broad categories: intermediate goods (parts or components that are embedded in final goods); capital goods (fixed inputs that assist in the production of other goods); and consumption (or final) goods.

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