a) Intermediate and Final Goods

These goods are classified based on their end-use rather than the product itself.

• Intermediate Goods: These are goods used as raw materials for further production or for resale in the same year. They remain within the “production boundary” and their value is not included in National Income to avoid double counting.

○ Example: Flour used by a baker to make bread is an intermediate good.

• Final Goods: These are goods that have crossed the production boundary and are ready for use by the final users (consumers or investors). Their value is directly included in GDP.

○ Example: A packet of bread purchased by a household for breakfast.

b) Consumption and Capital Goods

Both are types of Final Goods, but they serve different purposes in an economy.

• Consumption Goods (Consumer Goods): These are goods that satisfy human wants directly. They are consumed by households and do not promote future production. These are further divided into:

○ Durable: Last for years (e.g., Car, TV).

○ Non-Durable: Used up in a single act of consumption (e.g., Milk, Fruit).

• Capital Goods: These are fixed assets used by producers in the production process for several years. They do not lose their identity and are used to create more goods. They represent “Investment” and are subject to depreciation.

○ Example: A large industrial refrigerator used by a supermarket or a pharmaceutical company.