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My attempt to explain capitalism to a high school student

Economic system

An economic system is a way that a country or society organizes and manages its resources, such as money, goods, and services. It's like a set of rules and practices that determine how people earn money, buy and sell things, and make decisions about what to produce and consume.

Economic freedom

Economic freedom means having the ability to make your own choices about how to earn money, buy and sell things, and make decisions about what to produce and consume. It is the freedom to participate in economic activities without unnecessary restrictions or interference.

Capitalism

Capitalism is an economic system where people can start their own businesses and make decisions about what to produce, how much to charge and where to sell their products. In this system, capital assets (e.g. factories, mines, rail, roads, ports etc.) can be privately owned and controlled by individuals or private companies and labor is purchased for money wages.
Profit is the money a business earns after paying for all the costs involved in producing and selling goods or services. The primary goal of capitalism is to make a profit by selling goods or services.

Economic freedom and capitalism

Economic freedom is not only related to capitalism. Other economic systems also provide economic freedom to varying degrees. Economic freedom is important because it encourages innovation, entrepreneurship, and economic growth. When individuals and businesses have the freedom to make their own economic decisions, they are motivated to work hard, take risks, and come up with new ideas. This leads to the creation of new businesses, job opportunities, and improvements in the quality of goods and services.

Major drawbacks of capitalism that can affect society

1. In a capitalist system, wealth tends to accumulate in the hands of a small percentage of the population, and this can lead to a wide gap between the rich and the poor.
2. Successful companies can usually become so powerful that they dominate the market, allowing them to charge higher prices to consumers.
3. Capitalism can encourage greed i.e. the pursuit of profit in capitalism can sometimes prioritize making money over making decisions that may benefit society as a whole.
4. Capitalism, with its focus on profit, mostly overlooks the environmental impact of production. This can lead to overproduction, pollution, and other harmful effects on the environment and climate that affect everyone.
5. Often people are rich, simply because they inherit wealth or are born into a privileged class. Therefore, capitalist society can not only fail to create equality of outcome but also can also fail to provide equality of opportunity. Societies which are highly unequal create resentment and social division.

Topics not discussed
1. Rent

Reference: https://www.imf.org/external/pubs/ft/fandd/2015/06/basics.htm

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