Final Good

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Definition of a Final Good:

A final good is an item produced for direct use by end consumers. Final goods are also referred to as consumer goods.

Detailed Explanation:

Food, gasoline, clothing, and televisions are examples of final goods if used by households. Final goods can either be durable or non-durable. Food and gasoline are examples of non-durable goods because they are used up within three years. Clothing and televisions are durable because they last longer than three years. Consumer spending is the largest component of the gross domestic product (GDP), so it is essential for economists to measure it accurately when evaluating the health of the economy. Final goods are also called consumer goods because they are consumed by the final user. Intermediate goods are goods that are used in manufacturing a product. An example of an intermediate good is cotton when it is used as material in a shirt. Another example is milk if it is used to manufacture ice cream, but milk is a final good if it is purchased to drink. Intermediate goods are not included in GDP. Doing so would overstate the GDP because they would be double-counted: once as an intermediate good and again in the final good. Final goods that are resold, such as used cars or used furniture, are not included in consumer spending even though the second user would be the final user. Resold items were counted when they were sold to the original buyer (new). Including them again would overstate the economy’s production. 

Equipment used to build furniture are not final goods. They are classified as capital goods. A capital good is a good used in the production of other goods and services. It is possible for a product to be both a consumer and a capital good. The categorization depends on the product's use. When deciding if a good is capital or final good ask, “Is this product used in the production of a good or service?” If the answer is “Yes,” then it is a capital good. For example, a pickup truck can be either a capital good or a final good. If used by a builder to transport material to construct homes, the truck is a capital good. When the truck is the household vehicle, it is a final good. Other examples of goods that could be either capital or final goods include personal computers, iPads, ovens, and microwaves.

Dig Deeper With These Free Lessons:

Gross Domestic Product – Measuring an Economy's Performance
Demand – The Consumer's Perspective
Capital and Consumer Goods – How They Influence Productivity

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