Final answer:
Capitalism is the economic system characterized by market competition and private ownership of production factors, with decisions made by individual owners to generate profits.
Step-by-step explanation:
An economic system based on competition in the marketplace and private ownership of the factors of production is known as capitalism. In a capitalist economy, private individuals, and not the state, own the means of production which includes factories, companies, and land. People invest their capital to produce goods and services that are sold in the market. This investment is done with the aim to generate profits, which can then be reinvested in the business or used for other purposes.
Decisions about what to produce and the prices of goods and services are determined by the forces of supply and demand within the market. This contrasts with socialism, where the means of production are commonly owned and managed by the state, and communism, a more extreme form of socialism with total collective ownership. In contrast, privatization relates to the transfer of ownership from the public sector to private hands, but does not in itself represent an economic system. As such, the economic system centered on market competition and private ownership is capitalism.