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Intermediate Good

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❶Only final goods are included in national income. Growth rate of GDP.

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What is an 'Intermediate Good'
BREAKING DOWN 'Intermediate Good'

The rationale behind the income approach is that total expenditures on final goods and services are eventually received by households and firms in the form of wage, profit, rent , and interest income. Therefore, by adding together wage, profit, rent, and interest income, one should obtain the same value of GDP as is obtained using the expenditure approach. There are two types of expenditures, however, that are included in the expenditure approach to GDP measurement but do not provide households or firms with any form of income: Depreciation expenditures, made to replace existing but deteriorated investment goods, do increase the incomes of those providing the replacement goods, but they also decrease the profit incomes of those purchasing the replacement goods.

The result is that aggregate income remains unchanged. Indirect business taxes consist of sales taxes and other excise taxes that firms collect but that are not regarded as a part of firms' incomes. Consequently, indirect business taxes are not included in the expenditure approach to determining GDP, rather it is included in the income approach. The difference between the expenditure and income approaches to GDP measurement is illustrated in Figure. GDP is defined as the total market value of all expenditures made on consumption, investment, government, and net exports in one year.

If one subtracts depreciation and indirect business taxes from these expenditures, one arrives at national income , which is the sum of all wage, profit, rent, and interest incomes earned in the same year.

Growth rate of GDP. Consider a farmer who grows, or produces, wheat. In this example, wheat is the intermediate good. The miller breaks down the wheat crop and uses it to make flour, which is a secondary intermediate good. The final good, which is the good sold directly to the consumer, is the bread that the baker makes using the flour.

A company may make and use their own intermediate goods. The company may also produce the goods and then sell them, which is a highly common practice between industries. Companies buy intermediate goods for specific use in creating either a secondary intermediate product or in producing the finished good.

There are many intermediate goods that can be used for multiple purposes. They also include fixed capital formation and change in stocks. Investment goods are capital factor inputs and are durable. Examples of final goods are consumer goods like car, fruits, vegetables etc. Goods cannot be absolutely classified as intermediate goods and final goods.

Whether a good is a final good or an intermediate good depends upon its use. For example, that part of sugar which is used in the production of biscuit is known as intermediate good. On the other hand, that part of sugar which is directly consumed by consumers is called final good. Therefore, it cannot be said in absolute term as to whether a commodity is an intermediate good or a final good; it is a relative phenomenon.

Intermediate goods are not included in the calculation of national income; only final goods are included: Inclusion of intermediate goods in the estimation of national income would lead to the problem of double counting.

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What is an 'Intermediate Good' An intermediate good is a product used to produce a final good or finished product. These goods are sold between industries for resale or the production of other.

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Intermediate goods or producer goods or semi-finished products are goods, such as partly finished goods, used as inputs in the production of other goods including final goods. [1] A firm may make and then use intermediate goods, or make and then sell, or buy then use them.

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An intermediate good is simply a good that is used by a business to produce consumer goods or provide services to consumers. Many goods can be both consumer goods and intermediate goods. Durable goods (like trucks, aircrafts, vehicles, etc.) purchased by Government for military purposes are included under the category of intermediate goods as they are used to produce defense services and not for market sale.

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Examples of Intermediate Goods Vinish Parikh. June 20, Intermediate goods are also known as semi finished products; these goods are those which are used as input in the production of other goods or for making product saleable. Given below are some of the examples of intermediated goods –. The distinction between intermediate goods and final goods is not rigid. The same commodity may be an intermediate good or final good depending upon its use. For example, flour used by a household is a final good whereas flour used by a baker is an intermediate good.