Gross Domestic Product

Give an example of a good that can be both an intermediate good and a final good. An intermediate good is good that is used up in the production of final goods and services. A final good is a good or service that is consumed by the ultimate user. We don't count intermediate goods towards GDP because their value is captured in the price of the final good. But when goods are consumed by the ultimate user they do count towards GDP. Explain the situations when the good you describe would be considered a final good and under what circumstances would it be considered an intermediate good.

Example: A tire for your car can be both an intermediate good or a final good. If you buy a new car for $10,000, then the tires that come with the car would be considered an intermediate good. The purchase price you pay for the vehicle includes the tires, the stereo, the fuel pump, etc., so we don't want to count those intermediate goods towards GDP because they are already included in the $10,000 price you pay for the car, which will get counted towards GDP. However, if you get a flat tire and have to go purchase a replacement from a tire shop, that tire would be considered a final good. This is because you would be the ultimate user when buying a new tire from a tire shop. In this case, the purchase price for the tire would be counted towards GDP, as it is now a final good.