Glossary term
Intermediate Goods: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
Intermediate goods are goods and services that are used up as inputs in the production of other goods within the same year, such as flour bought by a bakery. Their value is already included in the price of the final product, so they are excluded from GDP to avoid counting them twice.
In more detail
Whether a good is intermediate or final depends on its use, not on what it is. Sugar bought by a sweet shop for making sweets is intermediate; sugar bought by a family for tea is final. Machines are not intermediate, because they are not used up in a single year: they are capital goods, counted in investment.
Example
Steel bought by a car manufacturer is an intermediate good. The car, sold to a household, is a final good, and only its value is counted.
Key points
- Used up or transformed in production within the year.
- Not counted separately in GDP.
- Value added = output − intermediate goods.
Common mistake
Treating a good as intermediate because of its type. Its use decides.
Related terms
Where it is explained
This term is explained in Class 12 Macroeconomics Chapter 2: National Income Accounting.