Hello Students, welcome to your learning space. In this post, we are providing you some basic concepts of economics regarding classification of goods. Classification of goods is very important topic in Macroeconomics for class 12. There is a good chance that questions will come from this topic in the upcoming final CBSE exams to be held in Feb-March 2025 for the session 2024-25. These notes are well crafted by the experts keeping in view the needs of students as per CBSE syllabus for the session 2024-25. Moreover, you will find these notes easy to understand as they are written in very easy language. Further, a layman can also get some idea regarding various types of goods.
We hope that you will be greatly benefitted from these notes. Your suggestions are also welcomed. You can connect us at ecostudy@cbsestudent.com
Table of Contents
Classification of Goods
Goods can be classified based on their user as per below:
1. Final Goods – Used by End-User/Final User.
2. Intermediate Goods – Not used by End-User or they have not reached to end-users.
Important Info – End User is the final user of goods and services who do not add value to the goods and services for the purpose of resale.
Example- A book is with the book seller and it is purchased by the student. Here, the student is the End User as he will not resale it while the book seller is an intermediate user who has purchased the book from somewhere else and is re-selling it to the student by adding some value/price in the books in order to earn some profit.
Final Goods
Final Goods –These are those goods which have reached to their end users. Moreover, they have also crossed the production boundary. Further there will be no value addition in these goods.
Special Note – Production Boundary is an imaginary boundary at which the goods and services are finally sold or resold and they are ready for use for the end users.
Example- A book is published by the publisher and sent to whole sellers. Whole sellers resale them to retail sellers (book-sellers) and retail sellers resale it to the final consumers. The production boundary ends when retail seller sells the book to final consumer.
A particular Note – You should note that the value addition is used here in the sense of addition in price of the goods by sellers for the purpose of resale and earning profit. More particularly, it is the difference between cost of producing/purchasing goods and the selling price of goods.
Types of Final Goods
Final Goods are of two types:
a. Final Consumer goods-purchaed by consumers (households) for fulfillig their wants. Example – Bread.
b. Final Producer goods – Purchased by Producer for help in production of other goods. Example – Machines
Important Info-Expenditure on final consumer goods is called Consumption Expenditure while expenditure on Final Producer goods is called Investment Expenditure.
Intermediate Goods
Intermediate Goods- These are those goods who have not reached to their end-users. They have not crossed the production boundary and there will be further value addition in these goods. Example- Raw material.
Important Info – Expenditure on intermediate goods is called Intermediate Consumption or Intermediate Cost.
Special Note: In calculation of GDP, only the value of Final Goods and Services is included. Alternatively, value addition at every stage of production process (within production boundary) is included in the GPD. Value/Price of Intermediate Goods is not included in GDP calculation.
Consumer Goods and Capital Goods
Now we will learn more about Consumer Goods and Producer/Capital Goods.
Consumer Goods: These goods can be defined as goods which directly satisfy human wants. Example – Consumption of Ice-Cream gives direct satisfaction to its user.
Types of Consumer Goods:
1. Durable Goods – These goods can be used repeatedly and have life for many years. Their value/price is high. Example -Washing Machine.
2. Non-Durable Goods – These goods are used only once and mostly they are perishable. So, they can also be called Perishable Goods. Example – Bread, vegetables.
3. Semi-Durable Goods – These goods can be used repeatedly, however, they have life of approximately 01 year. They are not very high value goods. Example-Cloths. Crockery.
4. Services – They are considered as non-material goods which directly satisfy human wants. Example – Doctor, Teacher.
Producer Goods: These goods can be defined as those goods which a producer uses in the production process. They are of two types:
1. Single Use Producer Goods- They are used only once in the production process to make other goods. So, they are mostly, intermediate goods. Example-Raw Material like Wood for making a table.
Capital Goods- These goods can be used for many years by the producer. These are fixed assets for him. They are demanded to manufacture other goods. Capital goods depreciate overtime and after expiry of their life, their value is just Scrap Value. Example- Machines.
Three Questions
Can same good be final and intermediate good?
Yes, it all depends on end-user. For example – sugar can be final good for consumers/ household. However, sugar used in making biscuits is an intermediate good as there is value addition in sugar by making biscuits.
All machines are not Capital Goods.
A sewing machine with a household is a consumer good while a sewing machine with a tailor is capital good. Why? Though, both are machines, one is using it for own purpose like sewing own cloths and not earning any money out of its use. However, the tailor uses it specifically for sewing cloths of other persons and earning through its use. So, basically, when you (a producer) earn by use of a machine by producing something, it becomes a capital good otherwise it is just a durable good with a household.
All producer goods are not capital goods but all capital goods are producer goods.
Both a bolt and a Wood Cutting Electric Machine are producer goods. However, a bolt is not a capital good as it cannot be used repeatedly in production process. A particular bolt is just a single use producer good which will be used up in making of a product like a table. Basically, it is raw material in the process of making another good. However, a Wood Cutting Electric Machine is repeatedly used in production process for years and it does not become part of the manufactured goods.
Conclusion
In conclusion, it can be said that the students need to learn classification of goods by heart if they want to learn about National Income Accounting. They will need the knowledge of Final Goods and Intermediate Goods while calculating national income. Further, knowledge of consumption expenditure done on consumer goods and knowledge of Investment Expenditure done on capital goods are the key to understand consumption and investment in a comprehensive way. Hope you enjoyed reading these notes. Thank You.
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