I am the opposite of a yarn snob, but the economic times have nothing to do with it. I am frugal by nature, and have always found the price of retail yarn to be... uncomfortable for me.... but I never shop at the big box stores either.
1) Secondhand yarn. I started out shopping for yarn at Value Village/Goodwill. Sometimes you can get pretty lucky! It's great for small projects, but there was never enough of one kind of yarn to make a sweater.
2) Local yarn factory! About 1 hour away is a yarn factory that spins Bernat, Patons, Lily, Phentex (Spinrite Factory in Listowel, ON). Since Bernat & Patons is what I would buy anyway, it's great. "Mill ends" are priced at 35 cents per ounce (and occasionally go on sale for 22 cents per ounce). So, about 95% of my yarn shopping is there at the factory store - and it's kinda local!
Yarn for a sweater for myself? At the factory outlet I will buy approx:
600g (21 oz) of worsted weight - $7.35 + tax
OR 1000g (35 oz) of chunky weight - $12.25 + tax
How much would I be willing to spend? I really don't know.... for now I just love being super-frugal.

These are acrylic or acrylic/wool blends. I love the feel of natural fibers, but I actually prefer to work in acrylic or acrylic/wool blends. I've never minded acrylic - this stuff feels soft to me. But my #1 reason for sticking with acrylic or acrylic blends:
That sweater I just spent a month knitting for myself - I'm not going to accidentally shrink it in the wash (and it will hold its shape really nicely).

P.S. to PP who mentioned the plastic wool rubbish baby hat - sounds like Phentex. It's this plasticky yarn that ppl use to knit slippers that last for 20 years. The feel of it makes me want to vomit. I guess we all have our limit, eh?