ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The flour, however, is something else. It’s an intermediate good – a good used up in the process of making something. The value of the flour is automatically included in the price the customer paid for the cupcake. That’s why, when using expenditures to calculate GDP, spending on intermediate goods isn’t included.

Detailed explanation-2: -Intermediate goods are those goods which are used in the production of final goods. Some examples of intermediate goods are wheat, soil, crude oil, steel, sugar etc.

Detailed explanation-3: -Wheat used by a flour mill is an intermediate product since wheat is used as raw material by flour mill.

Detailed explanation-4: -For example, sugar can be used as an intermediate good for making sweets but when sold to customers directly for household usage, it becomes a final good. In short, if the ultimate usage of a product is a further investment or direct consumption then it is a final product.