When goods are produced to make consumer goods, then it is an intermediate or semi-finished product. But that’s not all! In this article, I will explain in detail what this is all about. However, you should note that these goods add value to the final product.
Definition of Intermediate Goods Industry
1. Intermediate goods industry is a type of industry that deals with the production of materials, parts, and components required in making other intermediate or final products.
2. It can also be defined as an industry that specializes in making or rendering services that are needed in the final product.
Types of industry. The intermediate goods industry is one of the several industries you can find around you. Others are the consumer and capital goods industry. I have written about these. The consumer goods industry provides products and services to consumers. But capital goods industry extracts raw materials from the land, air, and water and is used to make intermediate and consumer products.
Materials. Certain materials fall under this category. Sugar is a good example. After being extracted from the cane, it can be further used to make other goods like Cake and Bread. Flour is another intermediate goods. In the production of bread, flour is the primary part. However, flour is made from wheat.
Parts and components. These are also semi-finished products. Components are used to make a final product. In producing mobile phones, several components are linked together. The camera may be produced by a different company. The semiconductor and operating system are made by a different entities. For example, Android smartphones use the Android operating system that is made by Google. The phone maker, say, Samsung will purchase this part from Google.
Examples. There are three types of intermediate goods:
- The one used to make other components, parts, and materials. Examples are semiconductors, stones used to make breaches.
- Next, is the one used to make consumer goods. Examples are Crude oil, flour.
- And banking and other services products. Banks and insurance companies serve as intermediaries. They collect deposits and premiums from surplus economic agents and make them available to deficit agents of an economy.
GDP. In economics, when calculating gross domestic product using the output method value-added goods are not included. These goods that add value are intermediate products.
To conclude, note that intermediate goods are value-added goods. They are materials, parts, and components that add value to the production of other goods and services. These parts are already produced by one company but are used by another company to make consumer or other semi-finished goods.