Intermediate goods are goods that are used in the production of other goods. They are an essential part of the production process and are usually used to create the finished product. For example, a car manufacturer would purchase tires, engines, and other parts to use in the production of their vehicles. These parts are considered intermediate goods because they are not the finished product, but rather the components used to create the final product. From a management perspective, it is important to understand the cost and quality of the intermediate goods used in production in order to ensure that the final product is of high quality and profitable.
Example of intermediate good
- Wood: Wood is commonly used as an intermediate good in the production of furniture and other wooden products. Wood is first cut into the required shapes, treated to make it more resistant to rot and insects, and then finished with a protective coating or paint. The finished product is then ready for sale to consumers.
- Plastic: Plastic is another common intermediate good used in the production of a variety of different products. Plastic is melted down, shaped into the required form, and then cooled. Once the plastic has cooled, it can be used to create items such as toys, electronics, and automotive parts.
- Steel: Steel is often used in the production of large-scale industrial products such as bridges and ships. Steel is first melted down and then formed into sheets or bars. These sheets and bars are then used to create the required parts for the final product.
When to use intermediate good
Intermediate goods are necessary components of the production process and can be used in a variety of applications. They are used by businesses to create finished products or services, and can be used to increase efficiency, reduce costs, and improve the quality of the final product. Here are some examples of when to use intermediate goods:
- When a business needs to create a finished product by combining multiple components, intermediate goods can be used to source the necessary parts and reduce production costs.
- When a business needs to increase the efficiency of its production process, intermediate goods can be used to reduce the amount of time it takes to assemble the finished product.
- When a business needs to improve the quality of its finished product, intermediate goods can be used to ensure that the components used in production are of the highest quality.
- When a business needs to replace a component in its production process, intermediate goods can be used to quickly source the necessary parts.
Types of intermediate good
Intermediate goods are essential components of the production process and can come in a variety of forms. Below are some of the most common types of intermediate goods used in production:
- Raw materials: These are the basic components used in production. Examples include wood, steel, and plastics.
- Components: These are the parts that are used to assemble the final product. Examples include screws, nuts, and bolts.
- Semi-finished goods: These are products that are partially complete and require further processing before they can be used. Examples include sheet metal, cut lumber, and molded plastics.
- Supplies: These are materials that are used in the production process but are not directly part of the final product. Examples include lubricants, adhesives, and protective coatings.
- Machinery: These are machines used in the production process. Examples include lathes, drills, and presses.
- Services: These are services that are used in the production process. Examples include transport, maintenance, and cleaning.
Advantages of intermediate good
Intermediate goods are an essential part of the production process and have a number of advantages. These include:
- Cost Savings: By purchasing intermediate goods, companies can save money on the production process as they are often cheaper than the finished product. Additionally, these goods can be sourced from multiple suppliers, allowing for competition and lower prices.
- Quality Control: By purchasing intermediate goods, companies can have better control over the quality of the finished product as they can ensure that the components are of the highest quality.
- Time Savings: By purchasing intermediate goods, companies can save time on the production process as they do not have to create the components from scratch. This can result in faster production times and higher profits.
- Flexibility: Companies often have more flexibility with intermediate goods as they can be modified and customized to meet the needs of the customer. This allows companies to be more creative with the products they produce.
Limitations of intermediate good
Intermediate goods can be limiting to a company's production process, as they can be subject to availability, cost, and quality issues. The following are some of the key limitations of intermediate goods:
- Availability: Depending on the amount of demand in the market, the availability of certain intermediate goods can be limited, making it difficult to obtain the necessary components to produce the finished product.
- Cost: The cost of intermediate goods can be higher than expected, making it difficult to maintain a profit margin.
- Quality: The quality of the intermediate goods can be lower than expected, resulting in a lower quality finished product.
- Delivery: The delivery of intermediate goods can be slow, resulting in delays in the production process.
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- Jones, C. I. (2011). Intermediate goods and weak links in the theory of economic development. American Economic Journal: Macroeconomics, 3(2), 1-28.