intermediate goods
Intermediate goods are the raw materials and parts used to make other goods, like flour bought to bake bread for sale, not to eat at home.
In plain English
A woman at Mile 12 market buys a bag of tomatoes to cook stew for her family this weekend. Down the road, a woman running a small chops business buys the exact same bag of tomatoes to make stew she will sell by the plate all week. Same tomatoes, same market, same price almost. But economically, these two purchases are worlds apart.
The first woman bought a finished good. The tomatoes will be eaten and that is the end of their story. The second woman bought an intermediate good. Her tomatoes are an ingredient, a stepping stone to something else she will sell for a profit, and that finished stew is what finally counts as the finished good in the economy's books.
This distinction matters more than it sounds like it should. When economists calculate GDP, they only count the value of finished goods and services, because counting the tomatoes and then counting the stew that contains those same tomatoes would mean counting the same value twice. So flour bought by a bakery, cement bought by a builder, and steel bought by a car plant in the United Kingdom are all intermediate goods, calmly doing their work without appearing twice in the national accounts.
Nigeria's economy leans heavily on this idea in one painful way. Crude oil sold abroad is a raw input, an intermediate good for someone else's refinery, and Nigeria buys back refined petrol, which is a finished good made from its own oil, at a markup someone else earned. That is the intermediate goods story hiding inside a familiar complaint about fuel prices.
Think also of someone in London sending money home to a relative who owns a small tailoring shop in Aba. Part of that money buys fabric and thread, intermediate goods, and the finished agbada sold to a customer is what finally shows up as income and adds to output.
A cassava farmer sells a bag of cassava for ₦8,000 to a garri processor. The processor turns it into garri and sells it for ₦15,000. Only the ₦15,000 counts as final output in GDP, since the ₦8,000 cassava was an intermediate good already folded into that final price.
Questions people ask
Is a laptop bought by a student an intermediate good?
No, that laptop is a finished good because the student is the final user. The same laptop bought by a business to resell would still count as inventory, but if a factory buys computer chips to build laptops, those chips are the intermediate good.
Why do intermediate goods not get counted directly in GDP?
Because their value is already baked into the price of the finished good. Counting both the flour and the bread separately would inflate the true size of the economy by counting the same economic activity more than once.
Are intermediate goods only physical things like flour or steel?
Not at all. Services can be intermediate too, like an accountant's fee paid by a business preparing to sell a finished product, or transport costs paid to move raw materials to a factory.
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