Capitalism is an economic system in which private people, not the government, own and run companies. These companies competewith other companies for business. They decide what products they want to produce, how much they should cost and where to sell them. Companies do all these things in order to make profits for their owners. People who use their money to start companies or runcompanies are called capitalists.

Even though a pure form of capitalism does not exist and governments control the economy in some ways it remains the world’s most popular economic system. In the United States the government keeps itself out of the economy as far as possible but in some European countries economic control is much larger. Other names for capitalism are free-market economy or free enterprise.

 

Features of capitalism

In a capitalist system private households need goods. They buy these goods from the income that they have. Some householdshave more income than others. Sometimes only one member of a household has a job, at other times both husband and wife go to work. Then they have more money to buy goods. This is the demand side of the economy.

On the other side companies and businesses offer private households goods and services. They produce the goods that they thinkconsumers will want to buy. To do this they need workers to produce these goods and services. This is the supply side of theeconomy.

Companies and households get together at markets. Here they exchange goods, services and jobs (labour). A market is a place where people buy and sell things. In a capitalist society the prices of goods, services and labour are determined by supply and demand. If a lot of people want to buy a certain product its price will go up. Products that are mass produced usually have low prices.