What Are Intermediate Goods? (Definition And Examples)

By Indeed Editorial Team

Published 25 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Intermediate goods are an important element of the production process because they change or combine to create the final goods that reach a customer. Besides creating intermediate goods, industries buy and sell intermediate goods amongst each other. Knowing about the process of production can be beneficial for developing business expertise. In this article, we examine what intermediate goods are and how they work, list examples of intermediate goods and illustrate the difference between intermediate goods, capital goods and consumer goods.

What Are Intermediate Goods?

The answer to the question, "What are intermediate goods"' is that they are unfinished products that you can process or transform to make other goods. Companies alter, merge or modify materials before selling a finished product to a client or customer. A hard drive, for example, is an intermediate good in the construction of a computer. Sometimes, companies may sell intermediate items directly to another producer as finished goods. For example, you can consider studio equipment as an intermediate good when the final product is a music track.

Some businesses produce and use their own intermediate goods, while others produce intermediate goods to sell to other businesses. Some others may buy intermediate goods to aid their ultimate output. Some industries refer to these goods as producer goods. A consumer good, which can also be an intermediate good, is a product that aids in creating a final good or finished product. Salt may be a finished product because customers consume it directly and an intermediate good because producers use it to make other food items. Producers exchange intermediate products between industries for resale or use in the production of other goods.

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How Do Intermediate Goods Work?

Intermediate goods might undergo more than one transformation before becoming a final product and several intermediate goods can go into the production of a single consumer good. Sometimes, the intermediate goods that go into a final product include service. A strategy called value addition can help estimate how intermediate goods contribute to a country's income. This approach determines a product's value during every production stage.

For using intermediate goods, there are normally three possibilities. A producer can produce and use their own intermediary items. It is also possible for a manufacturer to manufacture the goods and then sell them, which is a common practice in many sectors. Companies purchase intermediate goods intending to use them to make a secondary intermediate product or to manufacture a finished good. Eventually, all intermediate items become part of the final product or undergo full remodelling along the manufacturing process to make the final product.

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How Do You Classify Goods As Intermediate And Final?

The best way to classify goods as intermediate or final is based on the product's intended purpose rather than the product itself. You can categorise any commodity as a final good or an intermediate good based on its intended purpose. You can use salt to bake bread and also for consuming directly. Here, salt serves to illustrate how an intermediate item can also serve as a final good. You can categorise salt used in bread-making as an intermediate good and salt for consumption as a final good.

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.

What Is The Difference Between Intermediate Goods And Capital Goods?

Although both types of items contribute to manufacturing a company's final consumer goods, intermediate goods differ from capital goods. Intermediate goods are the consumable products that go into creating a product, such as the steel that goes into a car or the salt that goes into potato chips. Capital goods‌ are items that are necessary to support the manufacturing process. A robotic arm in a vehicle manufacturing unit and the conveyor belts that aid the manufacture of potato chips are both capital goods.

Both intermediate and capital goods are items that industries utilise to provide a service or a finished output. A barber's shears or a web designer's computer, for example, would make up capital goods. In their calculations, economists may divide capital goods into three categories, namely durable, nondurable and service. Customers use service items as you provide them with a service. Durable capital goods last more than three years and nondurable capital goods last less than three years.

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What Is The Difference Between Intermediate Goods And Capital Goods?

Consumer products and final goods are two terms that are often interchangeable. Consumer products are distinct from intermediate goods, as they are made up of the intermediate goods that aid in their production. When someone buys a consumer good, the objective is for a consumer to use it. Manufacturing processes use intermediate goods. Automobiles, computers and power tools are examples of consumer products.

Just as intermediate and final commodities can sometimes overlap, an item can be both a consumer and a capital good. For example, you can classify a vehicle for business usage as a capital product and a vehicle for personal use as a consumer good. The distinction between capital and consumer products also depends on how you use the item.

What Is The Relation Between Intermediate Goods And And Gross Domestic Product (GDP)?

Economists neglect intermediate products when calculating gross domestic product. GDP measures the market value of all final goods and services that make up a country's economy. This may not include intermediate products to avoid redundancy in value. The price of the final good typically reflects the price of the intermediate goods that aided its production.

As a result, if a confectioner purchases sugar to add to candy, an economist may only count it once when the confectioner sells the candy, and not at the point of purchase of sugar. When you take into consideration each stage of production that contributes to the final product, you may be following an approach of value addition. The reason for not including intermediate goods in GDP calculations is that doing so would double-count the value of the items when the industry practice is to only calculate the price of a material once during the entire production process.


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