## What is an 'Intermediate Good'

An intermediate good is a product usedÂ to produce a final good or finished product. These goods are sold between industries for resale or the production of other goods. One example of an intermediate good is salt, a product that is directly consumed butÂ also used to manufacture food products.

Gross domestic product (GDP)Â is a measurement of the market value of final goods. If intermediate goods were included in the calculation, the intermediate goods wouldÂ beÂ counted twice in the GDP calculation giving an inaccurate value. Therefore, the value-added approach is used when calculating intermediate goods. This approach values every stage of production involved in producing a final good.

Next Up

## BREAKING DOWN 'Intermediate Good'

Consider a farmer who grows, or produces, wheat. In this example, wheat is the intermediate good. The farmer sells his wheat crop to a miller for \$100Â giving the farmer an added \$100 inÂ value. The miller breaks down the wheat crop and uses it to make flour, which is a secondary intermediate good. The miller sells the flour to a baker for \$200 and creates \$100 in value (\$200 sale -Â \$100 purchase = \$100). The final good, which is the good sold directly to the consumer, is the bread that the baker makes using the flour. The baker sells all of his bread for a total of \$300, adding \$100 of value (\$300 -Â \$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 +Â \$100 +Â \$100).

## How Intermediate Goods Are Used

There are typicallyÂ three options for the use of intermediate goods. A company may make and use their own intermediate goods. The company may also produce the goods and then sell them, which is a highly common practice between industries. Companies buy intermediate goods for specific use in creating either a secondary intermediate product or in producing the finished good. Inevitably, all intermediate goods are either a componentÂ of the final product or are completely reconfigured during the production process.

## Other Examples of Intermediate Goods

There are many intermediate goods that can be used for multiple purposes. Examples include steel, which can be used in the construction of a house or the production of cars; wood, used to make flooring and furniture; glass, used in the production of windows and eyeglassesÂ and gold and silver, which can be used to make decorations, housing fixtures and jewelry.

RELATED TERMS
1. ### Intermediate Targets

Intermediate Targets are set by the Federal Reserve as part of ...
2. ### Consumer Goods

Products that are purchased for consumption by the average consumer. ...
3. ### Private Good

A product that must be purchased in order to be consumed, and ...

Adjusted net worth is the value of an insurance company based ...
5. ### Nominal Gross Domestic Product

Nominal gross domestic product measures the value of all finished ...
6. ### Eligible Commercial Entity

Eligible commercial entities are contract participants that have ...
Related Articles

### Intermediate Guide To MetaTrader 4

Learn how to use MetaTrader 4 software at an intermediate level.
2. Insights

### Deadly Flaws in Major Market Indicators

These indicators give investors and experts some data to work with, but they're far from perfect.
3. Investing

### What are Commodities?

A commodity is a basic good used in commerce that is interchangeable with other commodities of the same type. Commonly traded commodities include gold, beef, oil, lumber and natural gas. Additional ...
4. Investing

### Understanding Production Efficiency

Production efficiency is the point at which an economy cannot increase output of a good or service without lowering the production of another product.

### Identifying Market Trends

The success or failure of your long- and short-term investing depends on recognizing the direction of the market.

### Big Tech: Top or Buying Opportunity?

The Nasdaq-100 and big tech selloff in reaction to DC political drama is long overdue after dramatic gains but is unlikely to end the long uptrend.(AMZN)

### The 2016 Outlook for Wheat and Oat Futures

Oats futures shows greater upside potential than wheat futures in 2016.
RELATED FAQS
1. ### What is the difference between a capital good and a consumer good?

Learn to differentiate between capital goods and consumer goods, determined by how those goods are used, and see why capital ... Read Answer >>
2. ### What's the difference between cost of goods sold (COGS) and cost of sales?

Explore the difference between the cost of goods sold and cost of sales listed on an income statement, and what types of ... Read Answer >>
3. ### What Distinguished Financial Services Sector from the Banks?

Learn about the difference between the banking industry and the financial services sector and how to distinguish financial ... Read Answer >>
4. ### How is an economy formed and why does it grow?

Find out how an economy forms and why it grows, including the role that financial markets play and how productivity increases ... Read Answer >>
5. ### Which economic factors most affect the demand for consumer goods?

Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
6. ### How Operating Expenses And Cost of Goods Sold Differ?

Operating expenses and cost of goods sold are both expenditures used in running a business but are broken out differently ... Read Answer >>
Hot Definitions
1. ### Return On Equity - ROE

The profitability returned in direct relation to shareholders' investments is called the return on equity.
2. ### Working Capital

Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
3. ### Bond

A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
4. ### Compound Annual Growth Rate - CAGR

The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
5. ### Net Present Value - NPV

Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
6. ### Price-Earnings Ratio - P/E Ratio

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...