How do factor markets and product markets differ?

Factor markets are concerned with markets for factors of production or inputs in a production process (such as labor, capital, etcetera), whereas product markets refer to the market for the final goods themselves (such as cars, hamburgers).

The basic tools of analysis for both types of markets are similar. For instance, both can be analysed through simple demand-supply diagrams. In product markets, we measure quantity of the good in question on the X- axis, and price of the Y-axis.

For a factor market, we can analogously consider the demand of labor and the supply of labor curves, with the X axis measuring employment and the Y-axis measuring wages (the “price” of labor).

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