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Final goods can be best summarized as consumer products and services. They are finished products as opposed to the resources used to make those products. Final goods can therefore be described as items that do not require further processing and are not sold for the manufacturing of new products. The annual value of these items, when produced within a nation, is used to determine gross domestic product (GDP).
To understand the term “final goods,” a person needs to consider the process of creating all of the items that are used in society. A large portion of the items that consumers purchase must go through production, which often involves a number of phases. The items that are used or manipulated during production are known as intermediate goods.
There are many intermediate goods, such as crude oil, rubber and metal. These items are generally sold with the understanding that more processing will be done before they are in a state that makes them desirable to the end user. For example, the average individual does not want steel and rubber. Instead, he wants a car with tires, which are both considered final goods. When an individual purchases these items, he generally will not use them to make new products.
One way to determine whether or not items are final goods is consider if they provide satisfaction. Clothes and shoes, for instance, are items that people take pleasure in buying and are usually eager to use as they have them. The same cannot be said if these individuals had to purchase raw cotton and hides because these items would not offer enjoyment until they were processed. Most retail items, therefore, can safely be considered final products.
The assessment of final goods is generally important because it is used to determine GDP. A country's GDP is an economic indicator of how well the nation is doing. It is calculated by adding the value of all of the final goods a nation produces domestically in the span of a year without regards to the nationality of the individuals doing the producing.
Gross national product (GNP) is another economic indicator that relies on the assessment of the value of final products and services. This figure, however, is calculated differently than GDP. To determine GNP, a nation assesses the value of final goods that are produced by its citizens, even if the production occurs in foreign countries. This figure excludes the value of goods produced by foreigners.