ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Education and Science»
  • Economics

Intermediate Goods and Final Goods

Updated on November 11, 2013

Intermediate Goods and Final Goods

In the context of determining the National Income in economics, Goods purchased for consumption or for investment are called final Goods. On the other hand, Intermediate goods are goods purchased and used up in production process or resold during the same year.

Intermediate Goods:

In economics, all goods which are used as raw material for further production of other goods are treated as intermediate goods, even though it is finished goods for it's manufacturer. When you calculate national income, such goods which are used for resale in the same year are also treated as intermediate goods.

So we can define intermediate goods as "Goods which are used up during the process of production of other goods are called intermediate goods". Cloth purchased for making shirt by a dress making company is an intermediate good. At the same time if it is purchased by an individual for his personal use, it is a final good. So, the use of the commodity determines whether it is finished good or an intermediate good. Coal is a finished good when it is used by a household. But, when it is used by a factory, it is an intermediate good as it helps the production process of other goods.

While determining the national income, we only take the cost of finished goods. If we take the cost of intermediate goods in to account, even though it is a finished good by nature, while determining the national income we will not get the correct figure as there are chances of doubling the cost. So it is important to note that while calculating the national income, we only take the cost of finished goods and not intermediate goods.

Final Goods

When you calculate national income, Final goods are the goods meant for consumption by a consumer or goods meant for investment by a firm or an individual. Or we can say goods which do not undergo any further transformation or changes in the production process are called final goods. Thant means such goods will not undergo any further production process. Once it is sold out, it will be used for consumption and comes out of the active economic flow.

For example sugar can be treated as a finished or final good when a household user purchases it. At the same time, if a baker purchase that sugar for making cake, it can be treated as an intermediate good because it is an ingredient to the cake which is a finished good. In this case sugar undergoes another production process and dissolved in the finished goods.

Now, final goods can be divided in to two categories. They are:

  1. Consumption Goods
  2. Capital Goods

Consumption Goods:
Goods which are consumed by the ultimate consumers or which meet immediate needs of consumers directly are called consumption goods. Examples of consumption goods are pen, pencil, food, radio, mobile etc. Examples of services rendered for consumption are hotel, barbers, transport services etc. Examples of services rendered to the public or used collectively by the people are parks, street lights, police, courts, schools, mass transport systems like train, bus, metro train etc. Consumption of goods and services plays an important role in the growth of an economy.

Consumption goods can be further categorized into two. They are non-durable and durable goods. Fruits, milk, matches, coal, cigarettes are some examples of Non-durable goods which can be used only once. TV sets, mobile phone, car, fridge etc. are examples of durable consumer goods which can be used repeatedly for a number of months or years.

Capital Goods: Capital goods are goods which are meant for producing other goods but not for meeting immediate needs of the consumer are called capital goods. Machinery, plants, buildings, tools, tractors etc are some examples of capital goods which are durable in character. These goods are produced or purchased for using in the productive process. Generating income is the main objective of these goods. Some of the characteristics of capital goods are:

1. They would not merge or transform into the final goods while producing other goods.
2. While producing other goods, they undergo wear and tear and need replacement or repair over a period of time.
3. They are the backbone of the production process as they aid and enable production to go on continuously.
4. Capital goods increase the production capacity of an economy.

Capital goods plays a vital part in the growth of an economy. Increase of production of capital goods means more production in the coming days. One machine produces 1000 bulbs a day. Instead of one machine if you use two machines, the production will double as two machines can produce 2000 bulbs a day. Three machines can produce 3000 bulbs a day. It means, increase in capital goods increases the production capacity of consumer goods. For the growth of an economy, it is important to invest in capital goods. Capital goods are purchased either for addition of capacity or for replacement of worn out capital goods or for new production units.


    0 of 8192 characters used
    Post Comment

    • profile image

      farhanah 3 years ago

      thanks for sharing this's really helpful :)


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: ""

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)