Final Good and Intermediate Goods and the difference between nominal GDP and real GDP
BUS305
WINTER, 2013
MODULE 3
CASE ASSIGNMENT
02/02/2013
What is the difference between a final good and an intermediate good?
Intermediate Goods Intermediate goods by definition are used as a raw material for further production of other goods for its manufacturer (Bouman, J., 2012). In the calculation of national income goods which are used for resale in the same year are also treated as intermediate goods (Bouman, J., 2012). An example of this would be cloth purchased for making a shirt by a dress making company. Coal used by a factory is an intermediate good because it serves a purpose in moving toward a final product (Bouman, J., 2012). Intermediate goods are not counted toward the Gross Domestic Product because of the way investment is measured. The real issue is how we measure changes in business inventories, intermediate products are not sold so they are added to the inventory under investment. It moves out of inventory into a final good the next year and is subtracted from the inventory making the net effect zero (Bouman, J., 2012).
Final Goods Final goods are the goods that are produced for consumption by a consumer or goods produced for investment by a firm or an individual (Bouman, J., 2012). These goods do not undergo any further production processes and once they become sold out they come out of the economic flow (Bouman, J., 2012). Many final goods can be used as intermediate goods as well. Sugar is a final good that is produced from the cultivation of sugar cane but a baker can put sugar into a cake or pastries putting the sugar through another process. Final goods can be put into two categories:
Consumption goods
Capital goods
Consumption goods are goods that meet the immediate needs of the customer for example, pens, pencils, food and a radio (Bouman, J., 2012). Capital goods are goods which are meant for producing other goods but not for meeting the
WINTER, 2013
MODULE 3
CASE ASSIGNMENT
02/02/2013
What is the difference between a final good and an intermediate good?
Intermediate Goods Intermediate goods by definition are used as a raw material for further production of other goods for its manufacturer (Bouman, J., 2012). In the calculation of national income goods which are used for resale in the same year are also treated as intermediate goods (Bouman, J., 2012). An example of this would be cloth purchased for making a shirt by a dress making company. Coal used by a factory is an intermediate good because it serves a purpose in moving toward a final product (Bouman, J., 2012). Intermediate goods are not counted toward the Gross Domestic Product because of the way investment is measured. The real issue is how we measure changes in business inventories, intermediate products are not sold so they are added to the inventory under investment. It moves out of inventory into a final good the next year and is subtracted from the inventory making the net effect zero (Bouman, J., 2012).
Final Goods Final goods are the goods that are produced for consumption by a consumer or goods produced for investment by a firm or an individual (Bouman, J., 2012). These goods do not undergo any further production processes and once they become sold out they come out of the economic flow (Bouman, J., 2012). Many final goods can be used as intermediate goods as well. Sugar is a final good that is produced from the cultivation of sugar cane but a baker can put sugar into a cake or pastries putting the sugar through another process. Final goods can be put into two categories:
Consumption goods
Capital goods
Consumption goods are goods that meet the immediate needs of the customer for example, pens, pencils, food and a radio (Bouman, J., 2012). Capital goods are goods which are meant for producing other goods but not for meeting the
References: Armadeo, K., (2012). Natural Unemployment Rate. Retrieved February 2, 2013 from www.useconomy.about.com/od/glossary/g/natural_unemplo.htm Bouman, J., (2012). Principles of Macroeconomics. “Unit 3: Gross Domestic Product”. Retrieved February 2, 2013 from http://www.inflateyourmind.com/pdfs/macroeconomics.pdf