Division of goods into intermediate goods and final goods is of vital significance from the point of view of National Income Accounting. Therefore, it is necessary to know the meaning of these terms and also their difference.
Intermediate goods:
All those goods, which are used by the producer for producing other goods, are known as the intermediate goods. These goods are not demanded for their own sake but for their use in producing other goods. Raw- materials and semi-finished goods are regarded as intermediate goods. For example, raw-cotton used for the production of yarn is intermediate goods. Similarly, when yarn is sold to the owner of a textile mill for production of cloth, yarn is an intermediate goods. Thus, intermediate goods are those goods which are sold by one industry to another either for resale or for producing other goods. The value of intermediate goods is not taken into account while estimating the Gross Domestic Product (GDP).
Final Goods:
ADVERTISEMENTS:
Final goods refer to the finished goods, which are sold in the market for consumption and investment purpose. These goods are produced for their own sake, because these are finished product and do not undergo further processing. Final goods satisfy the wants of ultimate producers or consumers or both. Value of these goods constitutes Gross Domestic Product.
Final goods may be divided into two groups – consumer goods and producer goods.
The distinction between intermediate goods and final goods is not rigid. The same commodity may be an intermediate good or final good depending upon its use. For example, flour used by a household is a final good whereas flour used by a baker is an intermediate good. However, the distinction between these two types of goods can be understood with the help of the concept of ‘production boundary’.