This is an economic system in which the prices of the resources are determined on the basis of supply and demand. In practice there are some limitations on market freedom in almost all countries. Capitalism is the main feature of free market economy. Capitalism as an institution is the product of the Industrial Revolution. This type of economic organization is defined by private ownership and control of the economic instruments of production .The gearing of economic activity to making profits. A market framework that regulates this activity. The appropriation of profits by the owners of capital .The provision of labour by workers who are free agents. Capitalism has developed and expanded to dominate economic life along with the growth of industrialization although some of the features were to be found in the commercial sector of the pre-industrial European economy.
In capitalism the economic functions of the society are served by numerous highly differentiated and relatively small producers. Each producer either wholly or partially owns and controls his enterprise and bears the full risk and benefits of his activity. Control and coordination of the many activities and decisions of both producers and consumers are achieved. The operations of the free market in which what is supplied, in what quantities and at what price are largely determined by demand on the part of consumers and by competition between producers. Essential to such a system is a monetary unit which acts both as a source of wealth and as an accounting medium measuring the profit and loss of the enterprise.
Every human society however large or small establishes some division of labor among its members. People are expected to specialize at least to some extent in particular economic activities. This division of labor occurs in all societies because it is highly functional. It ensures that particular categories of people have specific jobs to do enabling them to become expert in their assigned activities. The division of labor thus enhances the efficiency of economic life.