Which of the following statements is/are correct?
Statement I: Intermediate goods are goods used as inputs in the production of other goods
Statement II: Capital goods are durable goods used in production that do not get transformed into the final product.
Show answer & explanation
Correct answer: A
Explanation
Correct Answer:-
Both statements I and II are correct
Explanation:-
Statement I is correct because intermediate goods are defined as materials or components that are utilized in the production process of other goods or services. These items are essentially transformed or consumed during the creation of a final product.
Statement II is also correct because capital goods, such as machinery, tools, and factory buildings, are durable assets used in production. Unlike intermediate goods, capital goods do not get physically transformed into the final product; instead, they continue to be used in the production process over a long period.
Key Points
Intermediate goods lose their identity in the final product, whereas capital goods retain their identity while helping to produce the final output. The distinction between these two categories is fundamental to national income accounting and macroeconomic analysis.
Important Questions and Answers
Question: Why are capital goods considered durable?
Answer: They are considered durable because they can be used in the production process repeatedly over several years without being consumed or transformed in a single cycle.
Question: Can an intermediate good ever be classified as a final good?
Answer: Yes, the classification depends on the end-use. For example, sugar used by a bakery to make bread is an intermediate good, but sugar purchased by a household for personal use is a final good.