An economy consists of the economic systems of a country or other area; the labor, capital, and land resources; and the manufacturing, production, trade, distribution, and consumption of goods and services of that area.
A given economy is the result of a process that involves its technological evolution, history and social organization, as well as its geography, natural resource endowment, and ecology, as a few of the main factors. These factors give context, content, and set the conditions and parameters in which an economy functions.
A market-based economy may be described as a spatially limited social network where goods and services are freely produced and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debit value accepted within the network. Capital and labor can move freely across places, industries and firms in search of higher profits, dividends, interest, compensations and benefits. Rent on land allocates this generally fixed resource among competing users.
Contemporary Capitalism is a market economy in which most of the production capacity is owned and directed by the private sector, as demonstrated by the capital "free market" in the United States. Government role is limited, to a great extent, to providing for defense and internal security, administering justice and prisons, making laws and regulations, enforcing contracts, laws and regulations, correcting market imperfections and failures, ensuring full employment without inflation, promoting balanced economic growth and development, providing for the poor, children, and elderly, protecting against and assisting in emergencies and natural disasters, providing basic opportunities to all members of society, preventing future calamities and disasters, and pursuing national goals established by society at large such as protection of the environment and natural resources.
On the other hand, traditional socialism is a command-based economy in which markets and the free exchange of goods and services, as well as manufacturing, production, trade and distribution are replaced or done by government central planning and state owned enterprises. In this economy all private owners of capital (called capitalist) and of land (called landowners) are not allowed or banned; and the only permitted private ownership is of consumption goods. Capital and land are assigned by the state and movement of labor is severely restricted. There are no profits, dividends, interest or rent. Labor compensation and benefits are decided by central planners.
Finally, a mixed economy contains elements of both capitalism and socialism which means a market-based economy with a varied degree of government central planning and state owned enterprises.