I think that people who craft things by hand in a country with a standard of living much like the U.S. has, need to ask more money for their labor than people who make things by hand in a country with the standard of living that is ‘enjoyed’ in places like China, Vietnam, Uzbekistan, and anywhere else cheap Wal*Mart grade products are made.
A while ago now, I tried making some of those beret-style hats like the Rasta and hippie folks use over their dreads. Friends liked them, people at a hippie music festival liked them, and many people suggested that I sell them at the local hippie head shop. So I took some up to the head shop, sneezed at the patchouli smell, and showed my hats to the shop owner, who was really excited about them. However, when she wanted to know how much they’d cost, I quoted a low (what I thought of as wholesale) price, and she laughed.
“I can’t afford those,” she said. “That’s why we buy our hats from Ecuador, which costs [like a tenth of what I had to charge, and wouldn’t even cover my materials].”
In other words, people expect nowadays to get handmade-like goods at sweatshop prices, and when you’re used to that sort of thing, Etsy prices will look really high. To me, that doesn’t mean that Etsy prices are too high, but that our sense of value is calibrated too low.