This economic system is characterized by private ownership of the means of production, where investment and resource allocation are primarily determined by voluntary exchange in markets. Individuals and businesses make decisions about production, pricing, and distribution based on supply and demand, with minimal government intervention. For example, the establishment of a tech startup funded by venture capital, producing software sold directly to consumers without price controls or production quotas, exemplifies its operation.
This economic organization promotes efficiency by incentivizing innovation and competition. Businesses strive to offer better products and services at competitive prices to attract consumers, leading to overall economic growth and improved living standards. Historically, its adoption has been associated with periods of significant wealth creation and technological advancement, as the freedom to pursue profit motivates individuals and businesses to take risks and develop new solutions.