Question

Write the importance of made distinction bw intermidiate and final good?

Answer 1

the importance of made distinction between intermediate and final goods are
Final Goods:

Final goods refer to those goods which are used either for consumption or for investment.

Final Goods include:


(i) Goods purchased by consumer households as they are meant for final consumption (like milk purchased by households).

(ii) Goods purchased by firms for capital formation or investment (like machinery purchased by a firm).

It must be noted that final goods are neither resold nor used for any further transformation in the process of production..

Intermediate Goods:

Intermediate goods refer to those goods which are used either for resale or for further production in the same year.

Intermediate Goods include:

(i) Goods purchased for resale (like milk purchased by a Dairy Shop).

(ii) Goods used for further production (like milk used for making sweets).

Important Points about Intermediate Goods:

1. They are generally purchased by one production unit from another production unit, i.e. intermediate goods remain within the production boundary. However, all purchases by one production unit from other production units are not intermediate purchases.

For example, purchases of building, machinery, etc. are not intermediate purchases (if they are not meant for resale) as their value is not included in the value of final good. In fact, such purchases are termed as final products as they are purchased for investment.

2. They have ‘Derived Demand’ as their demand depends on demand for final 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.

3. Value of intermediate goods is merged with the value of final goods. For instance, suppose a miller buys wheat worth? 700 and converts it into flour worth? 1,000. Now, the value of flour (final good) includes the value of wheat (intermediate good).


Hope it may help you.

@ M.S.V.

Answer 2

Heya....

See here for your answer...

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Before the actual ans you should may know what are final and intermidiate goods...

• Final goods --

Those goods who have crossed the boundary line of the production and no more value is to be added in these goods...

• Intermediate goods --

Those goods who haven't crossed the boundary line of the production and more value is to be added at other stage of production..

Now your actual Answer...

Distinction Between final and intermidiate goods are important because...

√ To avoid this problem of double counting

It means, when we count the intermediate goods then It became double counting , as the value of intermidiate goods is already added in the final goods..

So to avoid this, we never calculate the value if intermidiate goods in national income...

Thank you