What is Intermediate Consumption? What is Final Product and Value Added?
Intermediate consumption is consumption of goods and services not for direct satisfaction but for further use to produce goods and services. e.g. a bread manufacturer purchases wheat from other producer. This will be considered as intermediate product as it was purchased to carry production of bread. As per definition given by SNA, Intermediate products are the goods and services wholly used up during the course of production in the given accounting year.
Two conditions to be fulfilled by goods and services to get classified as intermediate product are:
- It must be purchased from other production unit.
- It should be acquired for resale purpose and should be fully used up during the course of production. e.g. rice purchased by restaurant, cloth purchased by garment factory etc. the cost incurred on such goods is known as intermediate costs and is included in the price of the good produced by them.
The good which is not meant for resale purpose and is either directly consumed by final consumer or purchased for investment by firms are known as final product. e.g. a machinery purchased by a production company. is an investment, clothes purchased by households etc.
This concept had already been covered in detail in previous unit. Basically value added is the difference between value of output of a firm and value of its input bought from other firms.
GVAmp = Value of gross output—Intermediate cost .
The sum total of GVAmp of all the sectors is equal to GDPmp.