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 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. Government role is limited to provide for defense and internal security; administer justice and prisons; make laws and regulations; enforce contracts, laws and regulations; correct market imperfections and failures; ensure full employment without inflation; promote balance economic growth and development; provide for the poor, children, and elderly; protect and assist in emergencies and natural disasters; provide basic opportunities to all members of society; prevent future calamities and disasters; and, pursue 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.