A capitalist system is that economic system in which free enterprise, competition and private ownership of the property guided by the profit motive generally prevail. Under capitalism, the means of production and distribution are controlled by private owners who operate them to earn profit. The important features of a capitalist economy are as follows:

(i)    Existence of Private Property. A capitalist economy is a free enterprise economy or a free market economy in which there is freedom of private ownership of property and means of production. The right to own property also carries with it the right to determine its use.

(ii)    Freedom of Enterprise. There is a freedom of choice of occupation in a capitalist economy. The individual have the right to determine the use to which any unit of productive resources shall be put.

(iii)    Profit Motive. Profit motive acts as the basic incentive for enterprises under capitalism. People invest capital into business to earn profit. Profit is the guiding force in making decisions regarding user of resources. The owners of means of production enter those fields which yield maximum profit. Naturally, costs and prices are compared for making business decisions. More resources flow into those channels where profits are higher.

(iv)    Free Competition. There is competition at all levels in a capitalist economy. There is competition among sellers to sell, among buyers to purchase and among workers to get employment. It is because of this competition that the forces of demand and supply are always in action in the market.

(v)    Price mechanism. Under capitalism, the allocation of economic resources is determined by profit motive n conjunction with the price mechanism. There is a free interplay of the forces of demand and supply. The price mechanism decides the levels of consumption, production and distribution. Thus, the whole economic system revolves around the price mechanism.

(vi)    Consumer’s Sovereignty. Customer is king under the capitalist system. The businessman produces the goods and services to satisfy the needs of customers. The customer or consumer has the liberty to buy commodity. He is free to spend his income in any way he likes.

(vii)    Role of Government. The Government is a protector of private property under capitalism. The role of the government is limited to the operation of public utilities to avoid unhealthy competition and to provide essential services to the public economically.

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