A capitalist system and a free market system are both economic environments that are based on the law supply and demand. They both are involved in determining the price and production of goods and services. However, 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.
Some key features of capitalism are competition between companies and owners, private ownership and motivation to generate a profit. In a capitalistic society, the production and pricing of goods and services are determined by the free market, or supply and demand, however some government regulation may occur. On the other hand, a private owner in a capitalist system can have a monopoly on the market and prevent free competition.
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 and 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. Because a free market system is based solely on supply and demand, it leads to free competition in the economy, without any intervention from outside forces.
The map below shows the most economically free countries, as of 2017, according to the Heritage Foundation. See full list of country rankings.