Final Goods and Intermediate Goods    

Simply put, Goods purchased and used up in production process are intermediate goods. Goods purchased for consumption or for investment are final goods. The distinction is based on whether the good is purchased for final use or for use in further production.

(i)    Final goods. All goods which are meant either (i) for consumption by consumers or (ii) for investment by firms are called final goods. They are meant for final use and the final use of a product is only for consumption or investment. Thus they do not undergo any further transformation (change) in the production pracess nor are resold. In other words final goods are acquired for own use i.e. by consumers for statifaction of their wants and by producers for capital formation.

(ii)    Intermediate goods. All goods which are used (i) as raw material for further production of other goods, or (ii) for resale in the same year are known as intermediate goods. Such goods are purchased by one firm from the other for use as raw material or for resale.

It needs to be noted that no good is always final or intermediate because it is the use made of the good which makes it final or intermediate. Let us consider manufacturing of biscuits. Biscuits are final goods but flour, milk, sugar, salt, fuel, etc. used in making biscuits are intermediate goods. Similarly cloth purchased by the household for the daily use is a final good but acquired by dress makers for making dresses is an intermediate good. Likewise bread when purchased by a household is a final good but purchased by bakery for making pattis is an intermediate good.