Question

What are Intermediate Goods ?

Hint:

The easiest way to identify an intermediate good is to ask: "Is this good going to be resold or used to make another product for sale within this year?" If yes, it's an intermediate good.

Answer 1

Step 1: Understanding the Concept:
In national income accounting, goods are classified based on their end use. Intermediate goods are distinct from final goods, which are meant for final consumption or investment.

Step 2: Detailed Explanation:
\begin{itemize} \item Purpose: Their primary purpose is to be used up in the production of something else. They have not yet reached their final user. \item Exclusion from National Income: The value of intermediate goods is not included in the calculation of national income (like GDP) because their value is already incorporated into the market price of the final goods they are used to produce. Including them would lead to double counting. \item Examples: \begin{itemize} \item Flour used by a bakery to produce bread. \item Steel used by a car manufacturer to build a car. \item Wood purchased by a furniture maker. \end{itemize} \item Context Matters: A good can be both intermediate and final depending on its use. For example, sugar bought by a sweet shop is an intermediate good, but sugar bought by a household for direct consumption is a final good. \end{itemize}