Each producer of commodities intends to sell her output to the consumers. The consumer may be an individual or an enterprise and the good or service purchased by that entity might be for final use or for use in further production. When it is used in further production, it often loses its characteristic as that specific good and is transformed through a productive process into another good. Thus a farmer producing cotton sells it to a spinning mill where it transforms into yarn; the yarn is, in turn, sold to a textile mill where, it transforms into cloth; the cloth is, in turn, transforms into an article of clothing which is then ready to be sold finally to the consumers for final use. Such an item that is meant for final use and will not pass through any more stages of production or transformations is called a final good. Final good will not undergo any further transformation at the hands of any producer. It may, however, undergo transformation during their consumption. Thus, it is not in the nature of the good but in the economic nature of its use that a good becomes a final good.

Of the total production taking place in the economy many goods may be used by other producers as material inputs. Examples are steel sheets used for making automobiles. These are intermediate goods, mostly used as raw material for production of other commodities. There are other goods that are of durable character which are used in the production process. These are tools, machines, etc. While they make production of other commodities feasible, they themselves don't get transformed in the production process. They are also final goods yet not for ultimate consumption. These are capital goods and they undergo wear and tear, and thus are repaired or replaced over time.