Intermediate Good

Definition of 'Intermediate Good'


An intermediate good is a good or service that is used in the eventual production of a final good, or finished product. These goods are sold by industries to one another for the purpose of resale or producing other goods. An example of an intermediate good would be sugar, which is directly consumed but is also used to manufacture food products.

Investopedia explains 'Intermediate Good'


Since GDP is a measure of the market value of all final goods, including intermediate goods in any calculations of GDP would result in double counting. Intermediate goods are calculated using the value added approach, which is accomplished by valuing each stage of production towards a final product.

For example, start with a farmer who produces wheat. Wheat is an intermediate good here, and the farmer sells the wheat to a miller for $100, meaning that the farmer added $100 of value. The miller now uses the wheat to make flour, which is a second intermediate good, and sells the flour to a baker for $200. This means that the miller created $100 in value ($200 sale-$100 purchase). Finally, the baker uses the flour and makes bread, which is sold to the consumer and is a final good. The baker sells for $300, and adds $100 of value ($300-$200). Note the $300 final bread price is equal to the value added for each step in the process ($100+$100+$100).


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added.
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes.
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The principle states that, for many phenomena, 20% of invested input is responsible for 80% of the results obtained. Put another way, 80% of consequences stem from 20% of the causes.
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer to government spending rather than business or individual spending. When referring to accrued federal government deficits, the term "national debt” is used.
Trading Center