Final and intermediate goods

A final good is one that will not pass through any more stages of production: it goes to its final user. A shirt sold to a customer is a final good.

Final goods are of two kinds:

• Consumption goods: they satisfy people's wants directly: food, clothing, and services like a haircut. Consumer durables (a TV, a car, a fridge) are consumption goods that last a long time.
• Capital goods: tools, machines and buildings used to produce other goods over many years. They are not used up in a single round of production.

Intermediate goods are inputs that are used up in producing other goods: steel sheets for cars, copper for utensils, flour for a bakery.

Whether a good is final or intermediate depends on its use, not its nature. Milk bought by a family is final; the same milk bought by a sweet shop is intermediate.

National income counts only final goods. If we counted intermediate goods too, their value would be counted twice: once on their own, and again inside the final good. That is double counting.