how intermediate goods work
intermediate goods are vital to the production process which is why they are also called producer goods industries sell these goods to each other for resale or to produce other goods when they are used in the production process they are transformed into another state there are typically three options for the use of intermediate goods inevitably all intermediate goods are either a component of the final product or completely reconfigured during the production process intermediate goods exampleconsider a farmer who grows wheat the farmer sells his crop to a miller for 100 giving the farmer 100 in value the miller breaks down the wheat to make flour a secondary intermediate good the miller sells the flour to a baker for 200 and creates 100 in value 200 sale 100 purchase 100 the final good which is sold directly to the consumer is the bread the baker sells all of it for 300 adding another 100 of value 300 200 100 the final price at which the bread is sold is equal to the value that is added at each stage in the production process 100 100 100 services can also be intermediate as in the case of a photographer the photography is the intermediate service while the photographs are the final product intermediate goods vs consumer and capital goodsintermediate goods can be used in production but they can also be consumer goods how it is classified depends on who buys it if a consumer buys a bag of sugar to use at home it is a consumer good but if a manufacturer purchases sugar to use during the production of another product it becomes an intermediate good capital goods on the other hand are assets that are used in the production of consumer goods that means they are purchased to help in the production process so the baker who bakes the bread in the example above will buy an oven to use in the production process that oven is considered a capital good which doesn t transform or change shape unlike the wheat intermediate goods and gross domestic product gdp economists do not factor intermediate goods when they calculate gross domestic product gdp gdp is a measurement of the market value of all final goods and services produced in the economy the reason why these goods are not part of the calculation is that they would be counted twice so if a confectioner buys sugar to add it to her candy it can only be counted once when the candy is sold rather than when she buys the sugar for production this is called a value added approach because it values every stage of production involved in producing a final good special considerationsthere are many intermediate goods that can be used for multiple purposes steel is an example of an intermediate good it can be used in the construction of homes cars bridges planes and countless other products wood is used to make flooring and furniture glass is used in the production of windows and eyeglasses and precious metals like gold and silver are used to make decorations housing fixtures and jewelry 