These goods are not demanded for their own sake but for their use in producing other goods. Raw- materials and semi-finished goods are regarded as intermediate goods. For example, raw-cotton used for the production of yarn is intermediate goods.
Similarly, when yarn is sold to the owner of a textile mill for production of cloth, yarn is an intermediate goods. Thus, intermediate goods are those goods which are sold by one industry to another either for resale or for producing other goods.
Final goods refer to the finished goods, which are sold in the market for consumption and investment purpose. These goods are produced for their own sake, because these are finished product and do not undergo further processing. Final goods satisfy the wants of ultimate producers or consumers or both.
Value of these goods constitutes Gross Domestic Product. Final goods may be divided into two groups — consumer goods and producer goods. Those goods which firms buy for production but sell during the year are also treated as intermediate goods.
Such goods are treated as used from the point of view of producers. Non-factor inputs are intermediate goods. Non-factor inputs include all inputs other than factor inputs. Inputs or materials bought during a year, if used during that year, are intermediate goods. However, that part of bought material which is either not used or not sold during the year forms part of opening stock of the next year in such a case, it becomes durable in nature and therefore is not an intermediate good.
Such goods which are not used in the process of production and accumulate with the firms at the end of the year are final goods. Such goods are used for final consumption and investment.
Final goods include consumer durable goods, single use goods and services. 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.
When an intermediate good is produced, but not sold, it is added to inventory. This change in inventory is recorded in GDP as a change in inventory under investment. The next year, when it moves out of inventory and into a final good, it is subtracted from change in inventory under investment.
Gross domestic product (GDP) is a measurement of the market value of final goods. If intermediate goods were included in the calculation, the intermediate goods would be counted twice in the GDP calculation giving an inaccurate value.
Intermediate goods are not counted in a country's GDP, as that would mean double counting, as the final product only should be counted, and the value of the intermediate good is included in the value of the final good. However, if the good is used for resale or further production (in the same year), then it is an intermediate good. National Income includes only Final Goods: Only final goods are included in national income.
Intermediate goods- Goods which are used up during the process of production of other goods. Final goods-Goods which do not undergo any firther transformation in the production process. Gross Domestic Product (GDP)- It measures the aggregate production of final goods and services taking place within. Intermediate goods and services, which are used in the production of final goods and services, are not included in the expenditure approach to GDP because expenditures on intermediate goods and services are included in the market value of expenditures made on final goods and services.