Out of the basic economic activities in which activity goods are used or what is their end use, goods can be classified into two categories: Intermediate goods and Final goods.

Intermediate Goods:

These goods are related to production. Goods which are used in the production process are known as intermediate goods. Raw-materials, fuel, electricity, spare parts etc, are its examples. Those goods which firms buy for production but sell during the year are also treated as intermediate goods. Such goods are treated as used from the point of view of producers.

Intermediate goods are non-durable in nature:

Non-factor inputs are intermediate goods. Non-factor inputs include all inputs other than factor inputs. Inputs or materials bought during a year, if used during that year, are intermediate goods. However, that part of bought material which is either not used or not sold during the year forms part of opening stock of the next year in such a case, it becomes durable in nature and therefore is not an intermediate good.

Final Goods:

Such goods which are not used in the process of production and accumulate with the firms at the end of the year are final goods. Such goods are used for final consumption and investment. Final goods include consumer durable goods, single use goods and services. They also include fixed capital formation and change in stocks. Investment goods are capital factor inputs and are durable. Examples of final goods are consumer goods like car, fruits, vegetables etc., changes in the stock of raw materials, finished goods and spare parts and capital goods of fixed nature like buildings, machines etc.

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Goods cannot be absolutely classified as intermediate goods and final goods. Whether a good is a final good or an intermediate good depends upon its use. For example, that part of sugar which is used in the production of biscuit is known as intermediate good. On the other hand, that part of sugar which is directly consumed by consumers is called final good. Therefore, it cannot be said in absolute term as to whether a commodity is an intermediate good or a final good; it is a relative phenomenon.

Intermediate goods are not included in the calculation of national income; only final goods are included:

Inclusion of intermediate goods in the estimation of national income would lead to the problem of double counting. For example, if fan and blades both are included in the national income, then the value of blades would be doubly counted.