A firm buys raw materials from other firms. The part of the raw materials which is NOT used up during the year and is carried to the next year is treated as:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → inventory
Raw material used up in the year is an intermediate good. The part a firm carries from one year to the next is part of its inventory.
Option (1) intermediate goods of the year — Incorrect. Only the part used up is an intermediate good of the year.
Option (2) final consumption — Incorrect. Final consumption is spending by households on final goods; a firm’s raw material is not that.
Option (3) depreciation — Incorrect. Depreciation is the wear and tear of capital goods, not unused raw material.
Option (4) inventory — Correct. Raw materials carried to the next year are inventory.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … Also, let us remember that a firm buys raw materials from other firms. The part of raw material which gets used up is categorised as an intermediate good. What happens to the part which does not get used up? In economics, the stock of unsold finished goods, or semi-finished goods, or raw materials which a firm carries from one year to the next is called inventory. Inventory is a stock variable. It may have a value at the beginning of the year; it may have a higher value at the end of the year. In such a case inventories have increased (or accumulated). If the value of inventories is less at the end of the year compared to the beginning of the year, inventories have decreased (decumulated). …” |