What Are Intermediate Goods? (With Several Examples)
By Indeed Editorial Team
Updated October 17, 2022 | Published January 13, 2021
Updated October 17, 2022
Published January 13, 2021
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
There are several types of goods manufacturing companies, retailers and other companies use when creating and selling their products. One of these is intermediate goods, or ones that are partially ready for consumption. Learning about these goods can help you learn more about why businesses might use these in their supply chain processes.
In this article, we discuss intermediate goods and how they work, offer examples of intermediate goods and highlight the differences between intermediate goods, capital goods and consumer goods.
Intermediate goods are unfinished goods that become part of another final product that companies sell.
Companies can use intermediate goods to build other goods themselves, sell partially completed forms for others to build and sell final products or sell to companies to produce other intermediate goods.
Consumer goods are the final products consumer buys built from intermediate goods, while capital goods include the equipment and tools purchased to assemble other goods.
What are intermediate goods?
Intermediate goods are unfinished items that comprise part of the production of other items. Manufacturing companies often change or combine these before other companies sell them to customers. For example, a hard drive is an intermediate good that professionals use in the production of a computer. Customers can also sell intermediate goods directly to customers as final goods, depending on their common uses.
Some companies make and use their own intermediate goods, some make intermediate goods to sell to other industries and some purchase intermediate goods for use in their final products. Another name for these goods would be producer goods.
How do intermediate goods work?
Intermediate goods might undergo more than one transformation before becoming a final product, and several intermediate goods can go into the production of a single consumer good. Sometimes, the intermediate goods used in a final product include service.
Intermediate goods aren't part of the gross domestic product of a country's economy because if they were, they'd appear twice: once when a company sells them to another and again when a company sells the final consumer product. A strategy called the value-added method aims to calculate how many intermediate goods contribute to a country's income. This method determines a product's value during every production stage.
Examples of intermediate goods
Intermediate goods include all items that are manufactured and traded to transform into a different final product for the consumer. Some examples of intermediate goods include:
Salt: Salt is an intermediate good because companies include it in the final product of many food and nonfood items.
Wheat: Like salt, wheat is an intermediate good because companies process it as part of another product, usually food or food-related goods.
Glass: Glass is an intermediate good because companies use it in many other finished products, such as windows and doors, that fundamentally transform its purpose.
Steel: Steel is another intermediate good that companies use to create final goods in many industries, such as construction and transportation.
Wood: Wood is a widely used intermediate good that companies process in many ways for household items and construction materials.
Precious metals: Companies process precious metals, like silver and gold, as intermediate goods and contribute to different final products such as jewelry and accessories. Some electronic items, such as solar panels, also use precious metals.
Car parts: The many parts comprising the production of cars and trucks are intermediate goods since they significantly transform when combined to make a final product.
Paint: Paint and other decorative items and substances are intermediate goods because they often contribute to a company's final goods as part of the production process.
Hardware: Hardware and fittings are intermediate goods when companies combine and transform them into a final consumer good.
Consumers can also purchase many of these intermediate goods as final products. For example, if someone buys wood to build a bookcase, the wood is a final product. If someone buys a bookcase, the wood that comprises it would be an intermediate product that helped produce the final product.
Intermediate goods vs. capital goods
Intermediate goods are different from capital goods, but both kinds of items contribute to the production of a business' final consumer goods. Intermediate goods are the consumable items that go into the production of a product, such as the steel that goes into a car or the salt that goes into potato chips. Capital goods are items that companies require to support the production process. For example, the robotic arm used in making cars and the conveyor belts used to process potato chips are capital goods.
Capital goods also include items that people use to provide a service as a final product. For example, a barber's shears or a web designer's computer are capital goods. Sometimes, economists sort capital goods into three categories in their calculations, including:
Durable: Durable capital goods are ones that last longer than three years.
Nondurable: Nondurable capital goods expire within three years.
Service: Service goods are those that people receive once created. For example, a haircut is a service good.
Intermediate goods vs. consumer goods
The final goods that customers purchase or use are consumer goods. Consumer goods differ from intermediate goods in that they comprise the intermediate goods that went into their manufacturing. When someone purchases a consumer good, the intention is for someone to use that product rather than as an element of further manufacturing. Examples of consumer goods include cars, computers and power tools.
Just as intermediate goods can sometimes overlap with final goods, one item can be both a consumer and a capital good. For example, a vehicle purchased by a courier service for business use would be a capital good, whereas a vehicle purchased by a family for personal use would be a consumer good. The difference between capital and consumer goods often depends on how people use that item more than the item itself.
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