Final Goods: Final goods refer to those goods which are used either for consumption or for investment.

Final Goods include:

  • Goods purchased by consumer households as they are meant for final consumption (like milk purchased by households).
  • Goods purchased by firms for capital formation or investment (like machinery purchased by a firm).

It must be noted that final goods are neither resold nor used for any further transformation in the process of production.

Intermediate goods Raw materials, power, fuels etc. used by the producers for further production of final goods and services are also called intermediate goods. Example: Wheat flour is an intermediate good in the production of bread in the bakery.

Intermediate Goods include:

  • Goods purchased for resale (like milk purchased by a Dairy Shop).
  • Goods used for further production (like milk used for making sweets).

How to Classify Goods as: Intermediate Goods and Final Goods:

The distinction between intermediate goods and final goods is made on the basis of the use of product and not on the basis of product itself. A commodity can be an intermediate good as well as a final good, depending upon its nature of use.

For Example:

  • Sugar is an intermediate good when it is used for making sweets by a sweet shop owner who sells sweets. However, if it is used by the consumers, then it becomes a final good.
  • Similarly, milk is an intermediate good when it used in dairy shops for resale. However, it becomes a final good when it is used by the households.

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