In a factor market the household provides land, capital and labor to firms in exchange for payments that come in the form of salaries, rent, or profits. In a product market the household income is used to purchase goods or services that are provided by firms.
The primary difference between product markets and factor markets is that factors of production like labor and capital are part of factor markets and product markets are markets for goods. ... Anything used in making a finished product—labor, raw materials, capital, and land—make up a factor market.
