question_answer

Explain with the help of an example, the basis of classifying goods into final goods and intermediate goods.

Answer:

The basis of classifying goods into final goods and intermediate goods is that whether the good is purchased or for final use or for use in further production.

(i) Final goods: All goods which are meant either for consumption by consumers or for investment by firms are called final goods. They are meant for final use and the final use of a product is only for consumption or investment. In other words, final goods are acquired for own use i.e. by consumers tor satisfaction of their wants and by producers for capital formation. For examples, biscuits, flour, cloth are final goods when purchased by a consumer for their personal use or for satisfaction of their wants. Machine bought by a household is final good but machine bought by a firm for its use in production is a final good.

(ii) Intermediate goods: All goods which are used as raw material for further production of other goods, or for resale. In the same year are known as intermediate goods. For example flour, milk, sugar, salt, fuel, etc. When purchased by a firm in order to prepare biscuits are intermediate goods. The cloth if purchased by a dress maker is also an intermediate good.

Machine if purchased by a firm for resale in the same year is an intermediate good.