Read the following statements carefully : Statement 1 : Final goods are those goods which normally lose their

Question 64 of 75

Q. Read the following statements carefully : Statement 1 : Final goods are those goods which normally lose their identity in the production process. Statement 2 : Final goods may get transformed during the consumption process by a consumer. (Choose the correct option) Options : (A) Statement 1 is true and statement 2 is false. (B) Statement 1 is false and statement 2 is true. (C) Both statements 1 and 2 are true. (D) Both statements 1 and 2 are false.

West Bengal WbchseCBSE Class XII Board 2026MCQ· 1mImportance★★★★★

85% · 64/75 Questions

🔒 Locked · start free trial →

You're viewing a preview — the full solution, concept, methods & PYQ mapping are locked.

Start your 14-day free trial to unlock the full solution →

Concept understanding — Final Goods vs Intermediate Goods (Consumption and Capital Goods)

Where Does Counting Stop? Final vs Intermediate Goods

Suppose we want to measure the total value produced in an economy in a year. A tempting mistake is to add up the value of everything sold — but that would count the same value many times. The wheat sold to the miller, the flour sold to the baker, and the bread sold to you all overlap. To measure output correctly, we must separate goods by where they stand in the production chain.

Final Goods = goods that are purchased for final use — either final consumption by households or final investment by firms — and do not pass through any further stage of production or resale within the accounting year.

Intermediate Goods = goods purchased by one firm from another to be used up as raw materials or resold within the same year; they are still "inside" the production process.

The Crucial Distinguishing Test

The difference is not about the physical nature of the good — the same good can be either, depending on its use:

Flour bought by a bakery to make bread → intermediate (used up in production).
Flour bought by a household to cook at home → final (final consumption).

So a common exam statement like “final goods include only those goods consumed by households” is false — final goods also include capital goods bought by firms for investment.

The Two Types of Final Goods

Final goods split cleanly into two categories:

Consumption Goods — bought by households to satisfy wants directly (durable like a fridge, semi-durable like clothes, non-durable like food, and services like a haircut).
Capital Goods — durable goods of fixed nature bought by producers to produce other goods (machines, tools, plant). These are the correct answer whenever a flow chart splits final goods into “consumption goods” and a blank box.

$\text{Goods} \;\longrightarrow\; \{\text{Final Goods},\; \text{Intermediate Goods}\}$ …

Start your 14-day free trial to unlock the full solution →

Statement 1 is false because final goods do NOT lose their identity in production — that describes intermediate goods. Statement 2 is true because final goods can indeed be transformed during consumption.

Let’s unpack this carefully. The question tests your grasp of a fundamental distinction in macroeconomics: the difference between final goods and intermediate goods. This distinction is crucial for correctly measuring national income — you must avoid double counting.

Statement 1 says: “Final goods are those goods which normally lose their identity in the production process.”

This is exactly backwards. Goods that lose their identity in the production process are intermediate goods. Think of wheat used to make bread — the wheat is ground, mixed, baked; you cannot see the original wheat grains in the final loaf. That is what “losing identity” means. Final goods, by contrast, are goods that are ready for use by the ultimate consumer and do not undergo further transformation in production. A shirt on a store rack, a mobile phone in its box — these retain their identity as finished products. So Statement 1 is clearly false.

Statement 2 says: “Final goods may get transformed during the consumption process by a consumer.”

This is true. When a consumer buys bread and eats it, the bread is transformed (digested) during consumption. When you use a washing machine, it undergoes wear and tear — that is transformation through use. The key point is that this transformation happens after the good has reached the final user, not during the production stage. In economics, final goods are those that are used for final consumption or investment, and they may be used up or transformed by the consumer. So Statement 2 is correct. …

Start your 14-day free trial to unlock the full solution →

←Previous questionQ51 — In an economy, exclusion of _____ may lead to under estimation of the …→Next questionQ53 — Meera and Shahid are two classmates, who were comparing India’s econom…

🎓Unlock everything free for 14 days

Unlock everything free for 14 days