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What is the Difference Between a Capitalist System and a Free Market System? By Steven Nickolas | Updated May 17, 2017 — 11:58 AM EDT

A:

A capitalist system and a free market system are economic environments where supply and demand are the main factors of price and production of goods and services. Although the two economic systems are based on the law of supply and demand, these systems are different.

Capitalism is an economic system based on ownership of the factors of production. Some key features of capitalism are competition between companies and owners, private ownership and motivation to generate a profit. The production and pricing of goods and services are determined by the free market, or the supply and demand.

A free market system is an economic system based solely on demand and supply, and there is little or no government regulation. In a free market system, a buyer and a seller transact freely only when they voluntarily agree on the price of a good or a service. For example, suppose a seller wants to sell a toy for $5, and a buyer wants to buy that toy for $3. A transaction will occur when the buyer and the seller agree on a price.

Here is an overview of the most economically free countries as of 2016.

Capitalism is focused on the creation of wealth and ownership of capital and factors of production, whereas a free market system is focused on the exchange of wealth, or goods and services. A free market system is based solely on supply and demand and leads to free competition in the economy, without any intervention from outside forces. On the other hand, a private owner in a capitalist system can have a monopoly on the market and prevent free competition.


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