Businesses don’t just sell goods. They also consume goods. In this lesson, you’ll learn about intermediate goods, some related concepts, and be provided some examples.
What Are Intermediate Goods?
Intermediate goods are goods that are used by a business in the production of goods or services. Intermediate goods are also referred to as producer goods. A consumer good, on the other hand, is a good purchased by a consumer for personal consumption.
In fact, intermediate goods are used to make consumer goods.You cannot determine whether a good is an intermediate good or a consumer good based on what it is. Many goods are both consumer goods and intermediate goods. Instead, whether a good is a consumer good or an intermediate good depends upon how it’s used.
If a good is used to produce a good for sale or to provide a service, then it’s an intermediate good. On the other hand, if a good is purchased for personal consumption, then it’s not an intermediate good.
Let’s look at some examples:
- Water is a good that consumers purchase every day and is also an intermediate good used in countless manufacturing process.
- If you buy flour to bake your family a cake, it’s a consumer good, but if a baker buys flour to bake a cake for her bakery, it’s an intermediate good. On the other hand, if our baker buys flour to bake herself a cake, the flour is a consumer good.
- If you buy a diamond for your wife, it’s a consumer good. If a jeweler buys a diamond for a ring he is designing for sale, it’s an intermediate good.
- If you buy a basketball for your kid, it’s a consumer good, but if a professional basketball team buys one for practice, it’s an intermediate good for a service – athletic entertainment.
- If you purchase pencils for your child’s school supplies, they are consumer goods, but if an accountant purchases pencils to prepare taxes for clients, they’re intermediate goods used in providing tax preparation services.
Let’s review! An intermediate good is simply a good that is used by a business to produce consumer goods or provide services to consumers. Many goods can be both consumer goods and intermediate goods. You determine whether a good is a consumer good or an intermediate good based upon how it is used.
If it’s used to produce a consumer good or service, then it’s an intermediate good.