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Intermediate goods are manufactured goods that are used to produce something else. They might be sold and marketed in their raw form or added to another finished product. When a macro economy's gross domestic product (GDP) is calculated, intermediate goods are only counted once.
The majority of finished products rely on other goods to make up their composition. For example, books need paper and glue in order to be created. In a similar fashion many processed food products, such as cookies, need sugar. The paper, glue and sugar would all be considered to be intermediate goods.
As its name suggests, an intermediate good is neither completely unmarketable as a purely raw material nor is it necessarily finished. These are the types of products that often serve a multitude of purposes. Many consumers buy sugar to use as a sweetener for coffee or to incorporate into their home baking activities. Companies purchase the same product in order to manufacture their own line of finished goods, including cereal, bread, and yogurt.
Usually intermediate goods require some sort of processing in order to be created. For example, sugar cane needs to be grown, cut and processed in order for sugar crystals to form. Some companies specialize in producing intermediate goods and may sell them. Others will produce, sell, and use these types of goods to create other finished products.
The food industry is a primary example of this. Companies that specialize in making spices and flavorings sell their finished products to end consumers in smaller portions. They also sell certain mixtures and flavorings to other food manufacturers in bulk. These manufacturers incorporate the flavorings and spices into their own products, which is generally not apparent or relevant to the consumer who uses them.
Consumption of these types of products occurs frequently in both consumer and commercial segments. They may be sold and exchanged several times before being converted into something else. When they are used as raw materials to create another finished product, intermediate goods are not counted in a country's gross domestic product. To count sugar as being produced once in its raw form and once as part of a cake batter would be double counting the same product.
As economists do not wish to over-inflate a country's GDP, the production of intermediate goods is typically not figured into the calculation. These goods are still essential to the production levels of an economy. Many products would simply not exist without the combined use of various goods. For example, cars and vehicles rely on steel, rubber tires, electrical sensors and lamps in order to be designed and created.
@Soulfox -- You do have a point, but you can't always just follow the intermediate goods to get a good idea of what's happening in the overall economy. Some companies by imported intermediate goods because they are based in a country that doesn't have them (think of sugar and oil, for example). That's kind of how international trade works, isn't it? My country has something your nation needs, you nation has something mine needs so let's trade.
If you want to see how an economy is moving, take a look at the intermediate goods. Does a country supply its own intermediate goods in the manufacturing process or purchase them from somewhere else?
If a nation used to provide its own intermediate goods but has shifted to buying them from other nations, that might be a sign that finished products will be soon to follow. If, for example, paper and glue for books come from South America instead of the United States, why spend money assembling books in the U.S.? Why not just move everything to South America?
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