What is an Intermediate Good?
An intermediate is a product that is used to manufacture a finished product or finished product – also known as a consumer good. Intermediate products – like salt – can also be finished products, as they are consumed directly by consumers and used by producers to manufacture other food products.
Intermediate goods are sold between industries for resale or to produce other goods. These goods are also known as semi-finished products because they are used as inputs to become part of the final product.
Intermediates are products used in the production process to create other goods that are ultimately sold to consumers.
The intermediate products are sold from industry to industry for resale or to manufacture other products.
Intermediates are typically used directly by a producer, sold to another company to make another intermediate, or sold to another company to make a finished product.
How do intermediates work?
Intermediates may undergo more than one transformation before becoming a final product, and multiple intermediates may go into the production of a single consumer good. Sometimes the intermediate products that go into a final product include services.
A strategy called value creation can help gauge how intermediate goods contribute to a country’s income. This approach determines the value of a product at every stage of production.
There are usually three options for using intermediates. A producer can produce and use its own intermediates. It is also possible for a manufacturer to make the goods and then sell them, which is common in many industries.
Companies buy intermediates with the intention of using them to make a secondary intermediate or to make a finished product. Eventually, all intermediate products become part of the final product or are completely redesigned during the manufacturing process to produce the final product.
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.
Examples Of Intermediate Goods
Intermediate goods include all items that you manufacture, trade or transform to create a different final product for a consumer. There are a wide range of intermediary products that you can use for various purposes. You can also sell many of these intermediary goods directly to consumers as finished goods. When you use finished goods to make another distinguishable item for sale, they become intermediate goods.
If someone buys wood to create a bookcase, the wood is a finished product. If someone buys a bookshelf, the wood in it is an intermediate product that assists in the creation of the final product. A medium-priced item like steel helps construct buildings, vehicles, bridges, planes and a wide range of other items.
You can use wood for flooring and furnishing, and glass for windows and eyeglasses. You can use precious metals such as gold and silver for making decorative items, fixtures and jewellery. Some examples of intermediate goods include:
- Salt: Salt is a common intermediate good because it appears in the final product of several consumable and non-consumable items.
- Wheat: Wheat commonly becomes part of another product, usually food, and this makes it an intermediate item.
- Glass: Glass in many other finished products, such as windows and doors, that slightly transform its purpose.
- Steel: Steel is another intermediate good that aids in creating final goods for many industries, such as construction and transportation.
- Wood: Wood is an intermediate good that you can process in many ways to create household items and construction materials.
- Precious metals: Metals such as silver and gold are intermediate goods and contribute to different finished products, such as jewellery and lifestyle accessories. Some electronic items such as solar panels also use precious metals.
- Mechanical components: The many parts that go into the production of automobiles and machinery are intermediate goods, since they serve an overarching purpose when you place them in a finished product.
- Paint: Paint and other decorative items and substances are intermediate goods because you can apply them to final goods to enhance their visual appeal as part of a production process.
- Hardware: Hardware and fittings are intermediate goods when they combine and transform into a final product.