In Table 3.1 Calculating Nominal GDP, we assumed that all of the goods and services purchased were purchased by their final users. That is, the T-shirts, music downloads, and meals were all purchased by households for consumption purposes. (Households are not the only group that consumes final goods and services in an economy. Firms, the government, and households in other countries can also be final consumers.) We term these final goods (Tshirts) and final services (music downloads and restaurant meals).
In contrast, intermediate goods and services are products such as raw materials and energy that are used—and completely used up—in the production of other goods and services. 1We do not include intermediate goods in GDP. Think about a bottle of wine, for example. It might be bought by a consumer at a wine store, in which case it is counted in GDP. Alternatively, it might be bought by a restaurant to sell with its meals. In this case, the cost of the meal is included in GDP, and the cost of the wine is already included in the cost of the meal. The restaurant may have purchased the wine from a supplier, but that purchase is not included as part of GDP. If both the sale of wine to the restaurant and the sale of that wine to a customer of the restaurant were counted in GDP, the same bottle of wine would be counted twice. By excluding the sale of intermediate goods in calculating GDP, we avoid such double counting.
Being intermediate is therefore not a feature of the good itself. It depends on how the good is used. Wine sold to a consumer directly is a final good; wine sold to a restaurant is an intermediate good. This fits with the idea that we want GDP to measure goods as they are valued by consumers.
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