Supply & demand should take into account comparative worth

I'm not exactly sure how item prices at NPC merchants are being calculated now, whether its based on pure availability to the vendors... however, other considerations should be taken into account, also.

For instance, materials cost + labor cost. If the item price is astronomically higher than the price of the materials + the price of the labor, there's a problem.

Also, value compared to similar gear. If an armor with leather straps is astronomically higher in price than an armor without leather straps, but only slightly better, there's a problem too. Of course, if the added material is "luxury" material like gold or gems, it the added price is meaningful, even if the armor isn't much better as armor. But if its not luxury, like leather, and its not that much better armor, the cost isn't justified.

In all, one of the purpose of NPC merchants should be to "correct" the market and create a price for player characters to compete against. To do this, IMO, pricing should go beyond standard "in stock" items, and also calculate minimum values or maximum values for a lot of other items.