Business Vocabulary in Use Intermediate with Answers

An intermediate good is a product used to produce a final good or finished product—also referred to as a consumer good. Intermediate goods—like salt—can also be finished products, since it is consumed directly by consumers and used by producers to manufacture other food products.

Intermediate goods are sold between industries for resale or the production of other goods. These goods are also called semi-finished products because they are used as inputs to become part of the finished product.

Key Takeaways

• Intermediate goods are products that are used in the production process to make other goods, which are ultimately sold to consumers.
• The intermediate goods are sold industry-to-industry for resale or to produce other products.
• Intermediate goods are typically used directly by a producer, sold to another company to make another intermediary good, or sold to another company to make a finished product.
• When calculating GDP, economists use the value-added approach with intermediate goods to guarantee that they are not counted twice—once when purchased, and once when the final good is sold.

How Intermediate Goods Work

Intermediate goods are vital to the production process, which is why they are also called producer goods. Industries sell these goods to each other for resale or to produce other goods. When they are used in the production process, they are transformed into another state.

There are typically three options for the use of intermediate goods. A producer may make and use their own intermediate goods. The producer 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 component of the final product or are completely reconfigured during the production process.

Intermediate Goods Example

Consider a farmer who grows wheat. The farmer sells his crop to a miller for $100 giving the farmer $100 in value. The miller breaks down the wheat to make flour—a secondary intermediate good. The miller sells the flour to a baker for $200 and creates $100 in value ($200 sale - $100 purchase = $100). The final good, which is sold directly to the consumer, is the bread. The baker sells all of it for $300, adding another $100 of value ($300 - $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 + $100 + $100).