This bachelor thesis titled “The importance of market mechanism” is divided into seven chapters. The aim of the thesis was to cover economic indicators of supply and demand and their importance in the functioning of the modern market system. Chapters cover market types that exist in the world, price mechanisms for goods and services, and modes of price formation. The second chapter explains market functions and structures, and its implications on consumers’ everyday life. In the third chapter, supply and demand and their interaction on the market are discussed. The fourth chapter, as the thesis title suggests, deals with market mechanism that keeps the market balanced. The fifth chapter explains the role of prices in the market mechanism and describes the process of price formation. The sixth chapter shows the supply and demand elasticity, i.e. how they react to changes in the market and how that affects consumers and suppliers on the market. Finally, the seventh chapter shows the application of supply and demand analysis on the market, and the formation of its preferences and prices.