Difference Between Intermediate Goods and Final Goods

Edited by Diffzy | Updated on: May 14, 2023

       

Difference Between Intermediate Goods and Final Goods

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Introduction

A branch of economics known as macroeconomics focuses on how various systems that function on a broad scale, such as the market, the general economy, and the market itself, behave. Inflation, price levels, economic growth rates, national income, GDP, and variations in unemployment are only a few examples of the phenomena that macroeconomics focuses on. The phrase “intermediate goods” refers to products that are produced using intermediate goods as a factor of production. They engage in the industrial process to achieve this. On the other hand, final goods are those that can be sold right away to the final consumer of the product. Consider a car as an example. A car is a finished good, but the components are used to make it, such as the gear lever, tires, steering wheel, windscreen wipers, seat belt, speedometer, bumpers, headlight, taillight, hoods, mirror, and many more, are all intermediate goods.

Intermediate Goods vs Final Goods

The phrase "intermediate goods" refers to the raw materials that one company provides to another for the inputs to be fully utilized in the creation of other goods. Contrarily, "final goods" refers to any product created for the ultimate consumer's direct use to meet their present wants and needs. The company either resells intermediate goods to make money or processes them again to make final goods. Final goods, on the other hand, are those that the end user uses for personal consumption or that add to the capital stock in a new way. This is determined by capital creation or net investment.

Difference Between Intermediate Goods and Final Goods in Tabular Form

PARAMETERSINTERMEDIATE GOODSFINAL GOODS
MeaningIntermediate goods are goods used to produce a final good or finished good for selling to consumers.Final goods are those goods that do not require further processing and are ready to use for consumption or investment.
NatureIntermediate goods are neither included in the domestic income nor the national income of an economy.Final goods are included in domestic income as well as the national income of an economy.
Production BoundaryThe intermediate goods are the goods that are present within the production boundary.The final goods are the goods that have crossed the production boundary.
Value AdditionSome value has to be added to the intermediate goods because they are not ready to use.No value has to be added to the final goods because they are ready to be used and invested by their final consumers.
ExampleButter is used by a baker for further production, equipment is purchased by a trader for resale, etc.Butter purchased by a consumer for consumption, equipment purchased by an organization as an investment, etc.

What are Intermediate Goods?

As the name implies, intermediate goods are products that the company either processes again or sells again. We are all aware that only a certain percentage of the goods produced during a given accounting year in a country are ultimately consumed. As a result, neither capital nor finished goods make up the remaining half. They are used by the producers as raw materials to create intermediate goods, which are different types of finished goods. Therefore, these products are either a component of the finished good, or their identity is lost during conversion. Intermediate items have a short lifespan. The producer provides such products to the industries to resell them after adding value. These are raw or partially raw items that are used as inputs in a process to change them into another form. As a result, intermediate goods are essential to the production process.

Frequently, one company will produce intermediate goods and then sell them to another company for assembly or additional processing. This is referred to as the supply chain and it entails several exchanges between manufacturers of intermediate goods and manufacturers of finished goods. The ability to produce final commodities and services makes intermediate items essential to the economy. Business profitability and the state of an economy as a whole can be significantly impacted by the availability and price of intermediate goods.

Examples of Intermediate Goods

  • A seller purchased the sewing machine.
  • A dealer purchased the computers.
  • A farmer purchased the diesel.
  • A Factory consuming electricity.
  • A dealer purchased the furniture.

Advantages of Intermediate Goods

  • By enabling producers to buy raw materials and components at a lower cost than if they were to generate them themselves, intermediate goods can be utilized to lower manufacturing costs.
  • By enabling manufacturers to outsource the rest of their misunderstanding and focus on their areas of specialization, intermediate items can boost production efficiency.
  • Manufacturers can swiftly respond to changes in demand or supply by using intermediate items to build a more flexible production process.
  • By enabling manufacturers to divide their orders across several suppliers, intermediate items can aid in lowering the manufacturing risk.
  • By enabling manufacturers to buy higher-quality raw materials and components, intermediate goods can be utilized to enhance the quality of finished goods.
  • By enabling businesses to have a consistent supply of raw materials and parts on hand, intermediate goods can be used to accelerate production.
  • By enabling producers to have the essential supplies and parts on hand, intermediate goods can reduce the time to market.

Disadvantages of Intermediate Goods

  • If producers are unable to locate trustworthy or affordable suppliers, intermediate items may raise production costs.
  • If firms outsource too much of their manufacturing, intermediate goods could result in a loss of control over the production process.
  • If suppliers are unable to provide materials and components promptly, intermediate goods may cause manufacturing delays.
  • If suppliers are unable to offer the appropriate quality of materials and components, intermediate goods may result in inferior quality final products.
  • Dependence on suppliers and a lack of supply chain control may result from intermediate goods.
  • If suppliers are located distant from the manufacturer, intermediate goods may result in higher transportation expenses.
  • The supply chain may be disrupted by intermediate items being sensitive to trade obstacles, tariffs, and limitations.

What are Final Goods?

A product that is ready for consumption, to satisfy the needs of the consumer, or to be used as an investment by the makers is referred to as a final good. In plain English, completed goods are those that are offered for sale to customers with no plans to physically alter them or use them as resources during the production process. They are thus created to sell them to the final consumer through a variety of distribution channels. To calculate gross domestic products, it is necessary to measure the market value of freshly produced final items throughout the year.

Two more categories are used to further categorize final goods:

  • Consumption Goods: This category includes services as well as products that are purchased to be consumed, such as food and clothing. It is also known as a consumer product, and it can be either durable or not.
  • Capital Goods: Tools, machinery, and other items that are durable, aid in production, and do not transform are referred to as capital goods. These items are referred to as capital goods, and they lose value over time. To support production and sustain capital stock, businesses and industries buy these products.

Any economy must produce finished products to be successful. Businesses compete with one another to produce commodities that satisfy customer requirements and preferences in a market economy, which is driven by consumer demand. Sales of finished goods bring in money for companies and pay for labor, which in turn fuels economic expansion. Overall, finished products are the outcome of a labor-intensive manufacturing process, and they must be both readily available and of high quality to satisfy customer demands and desires as well as to support the health and expansion of an economy.

Examples of Final Goods

  • A tailor purchased the Sewing Machine.
  • A school purchased the furniture.
  • Household consuming Electricity.
  • A cyber café purchased Computers.
  • A consumer purchased wheat.

Advantages of Final Goods

  • Final goods are finished goods that are prepared for consumption and can be used right away by customers or businesses.
  • Final goods are frequently more valuable than intermediate goods since they have undergone all necessary processing and are frequently of a higher caliber.
  • Final products often have a longer lifespan than intermediate products, which can be used or depleted quite quickly.
  • The selling of finished goods brings in money for business and can boost the economy.
  • Exporting finished goods to other nations opens up the possibility of expanding trade and the global economy.
  • For those involved in their manufacturing and delivery, final goods can offer employment and revenue.

Disadvantages of Final Goods

  • Because production and distribution costs are already factored into the price, consumers may pay more for final goods.
  • Final products may become outmoded or less appealing with time and are prone to obsolescence.
  • Consumer trends and tastes can have an impact on final products, making it more difficult to sell them under specific market conditions.
  • Due to the need for resources and energy during production and transportation, final products may not be as environmentally friendly.
  • A reliance on consumption that is too great and the acquisition of needless items can both be attributed to final goods.
  • The export or import of finished goods may be complicated by tariffs and other trade restrictions.

Similarities Between Intermediate Goods and Final Goods

Both intermediate and final goods are different from each other but some similarities make looks them similar, these are stated as follows:

  • The manufacture of other commodities and services involves the utilization of both physical products known as final goods and intermediate goods.
  • Both are utilized in the manufacturing of other items, either as raw materials for more processing or as finished goods for sale to customers.
  • Tariffs and taxes apply to each.
  • Both are exchangeable on global marketplaces.
  • Both may be kept in an inventory.
  • Both can be carried to various places.
  • Both may be offered for sale to clients or customers.
  • Changes in production techniques and technology may have an impact on both.
  • Consumer demand fluctuations may have an impact on both.

Main Differences Between Intermediate Goods and Final Goods in Points

  • The company either resells intermediate goods to make money or processes them again to make final goods. Final goods, on the other hand, are those that the end user uses for personal consumption or that add to the capital stock in a new way. This is determined by capital creation or net investment.
  • To prepare them for sale, intermediate goods must undergo additional manufacturing or reprocessing. Contrarily, completed goods don't require any additional processing because their manufacturing is finished.
  • As they are already factored into the value of final goods, the value of intermediate goods is not taken into account when calculating the country’s GDP. Furthering the addition will result in double counting, which will raise the GDP.
  • Due to the dependence between the demand for intermediate and final goods, intermediate goods have derived demand. Final goods, on the other hand, are in direct demand since they are created to meet consumer demands.
  • The creation of final goods requires the use of intermediate goods as raw materials. On the other hand, to complete production, the final items need intermediate goods.
  • Since intermediate products are used in the production process and are not meant for final use, they are frequently less durable than final products. Contrarily, finished goods are made to be sturdy and useful to the final user over the long term.

Conclusion

The usage of a product determines whether it is an intermediate good or a final good, as shown by the discussion above.Additionally, some products can be used as both intermediate and final goods, such as salt and sugar, which can be used both directly by households for their consumption and as an ingredient in the production of other products. Final goods are sold to the end user for their final use or consumption in a B2C market, whereas intermediate goods are used in the manufacture of other goods or services and are sold in a B2B market. The cost of producing final goods includes the cost of intermediate goods, which are often less durable than final goods.


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"Difference Between Intermediate Goods and Final Goods." Diffzy.com, 2024. Wed. 28 Feb. 2024. <https://www.diffzy.com/article/difference-between-intermediate-goods-and-final-goods>.



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