Intermediate and Final Goods

Transcript

DIFFERENT TYPES OF INTERMEDIATE GOODS USED FOR PRODUCTION USED FOR RESALE Goods Purchased by Factory Goods Purchased by Shopkeeper Example Purchase of Wool by Factory to make Sweater Example Purchase of Sweater by Shop to be sold to Consumer Sheepherd Manufacturer Shop Consumer Wool This wool is Intermediate good for B as it is used for Production Sweater This Sweater is Intermediate good for C as it is used for Resale Sweater This Sweater is Final goods for D as it is used for Consumption DIFFERENT TYPES OF INTERMEDIATE GOODS Example 2 Suppose a company A manufactures steel It is used by company B to make Steel Chair This Steel Chair is sold to Wholeseller C who sells it to Retailer D D sells it to Consumer E Manufacturer Manufacturer Wholeseller Retailer Consumer Steel Steel Chair Steel Chair Steel Chair In this case Steel is an Intermediate goods for B as it is used for Further production Steel chair is also intermediate goods for C and D as it is used for Resale Steel Chair is Final goods for E as it is used for Consumption Where is Value Addition-in Intermediate Goods or Final Goods Manufacturer Manufacturer Wholeseller Retailer Customer Steel Rs 400 Steel Chair Rs 1000 Steel Chair Rs 1100 Steel Chair Rs 1200 Final Price Steel Chair Rs 1200 Value Addition in all these Stages There is Value Addition in Intermediate goods No Value Addition There is no Value Addition for Final Goods Are Final Goods only Used by Consumer? DIFFERENT TYPES OF FINAL GOODS USED FOR FINAL CONSUMPTION Purchase of Goods by Consumer for Use Example Computer Purchased by Consumer to be used at home These are also called Consumption Goods USED FOR INVESTMENT Purchase of Goods by Business to be used as Fixed Assets Example Computer Purchased by Office to be used by Employees These are also called Capital Goods GOODS PURCHASED BY A BUSINESS (Factory.Shop etc) FOR FURTHER PRODUCTION or RESALE If used Same year Intermediate goods Example Raw Material Consumed If Not used in same year Final Goods Example Raw Material Stock unused FOR USE AS FIXED ASSETS It is Final Goods Example Machinery Purchased by Factory Computer Purchased by Office What is Production Boundary? It is the imaginary line around the production process It includes all the producers and activities which causes value addition Example 1 Farmer ----------------->Spinning Mill----------------->Textile Mill------------------------->Tailor-------------------->Consumer Cotton Yarn Cloth Shirt In above case, Production Boundary covers Farmers, Spinning mill,Textile Mill and Tailor It is because all these are involved in production process Consumer is not part of production process as they do not create any value addition Why concept of Production Boundary is Important? All goods purchased within the production boundary are Intermediate goods Example Raw Cotton,Yarn and Cloth are Intermediate goods All goods purchased outside the production boundary are Final goods Example Shirt Farmer ----------------->Spinning Mill----------------->Textile Mill------------------------->Tailor-------------------->Consumer Cotton Yarn Cloth Shirt Example 2 What is Production Boundary in following Case Manufacturer Manufacturer Wholeseller Retailer Consumer Sell Steel Sell Steel Utensil Sell Steel Utensil Sell Steel Utensil in this case Production Boundary covers only A and B C,D are shopkeepers who are not part of Production process In this case,Steel is Intermediate goods as it falls within Production Boundary Steel glass is not intermediate good as it is outside the Production Boundary Note Same Goods may be Intermediate or Final Depending Upon Use Example 1 Farmer Sugar factory Sweet Shop Consumer Sugarcane Sugar Jalebi (Sweets) In above case, Sugar is used by Sweet Shop for Further Production So Sugar is an Intermediate good Example 2 Farmer Sugar factory Consumer Sugarcane Sugar In above case, Sugar is used by Consumer for Consumption So Sugar is a Final good Direct Demand and Derived Demand Farmer Flour mill makes Consumer Wheat (intermediate Goods( Flour (Final Goods) In this case Consumer has direct demand for Flour, If Consumer demands more flour Flour mill will purchase more wheat So demand for wheat depends upon demand for flour So it is derived demand Difference between Direct and Derived Demand Direct Demand Demand of goods is not dependent upn other goods Final goods have Direct demand Derived Demand Demand of goods is not dependent upon demand of other goods intermdiate goods have Derived Demand Note Cost of Final goods include Cost of Intermediate Goods (Derived Goods) Farmer grows Wheat Flour mill makes Flour (Atta) Consumer purchases Atta Sells Wheat Rs 40 Sells Flour Rs 100 purchases Atta This Rs 100 includes Rs 40 cost of wheat What is National Income? It is 100 (value of final goods) Note While calulating National Income We take into Account only cost of Final goods and not intermediate goods Reason If both are taken into account, it will lead to double calculation Difference between Intermediate Goods and Final Goods INTERMEDIATE GOODS It refers to those goods which are used for Further Production or Resale They are not included while calculating National Income They have not yet crossed Production Boundary More Value Addition can still be done on these goods Example Purchase of Sugar by Sweet Shop for Production Purchase of Computer by Computer shop for Sale FINAL GOODS It refers to those goods which are used for Final Consumption or Investment They are included while calculating National Income They have crossed Production Boundary No more Value Addition can be done on these goods Example Purchase of Sugar by Consumer for use Purchase of Computer by Office for use by employees NCERT Questions No questions in this part Other Books Q1 Final Goods refer to those goods which are used either for _____ or for ____. Ans consumption investment Q2 ________ refers to those goods which are used either for ____ or for further production in the same year. Ans Intermediate resale Q3 Milk purchased by households is a ___ good, while milk purchased by a sweet shop is an ___ good. Ans final intermediate Q4 Intermediate goods are still within the ___ boundary. And production Q5 National Income includes only ___ goods. Ans final