Final answer:
Capitalism is characterized by privately owned businesses, the pursuit of profits, and a market economy, where economic freedom and competition drive innovation and resource allocation.
Step-by-step explanation:
Capitalism is characterized by privately owned businesses, the pursuit of profits, and the functioning of a market economy. In this economic system, individuals and entities have the freedom to produce and sell goods and services with minimal government interference. Private ownership allows individuals to control and benefit from their investments and efforts. Economic freedom promotes competition, which helps to maintain low prices while fostering innovation. Profits serve as an incentive for businesses to improve and for investors to continue funding operations. In essence, capitalism encourages the efficient allocation of resources through the forces of supply and demand in a market environment.