i price items based on materials cost + (hourly wage * hours used).
i sell my items primarily in boutiques in NYC, so it's higher priced market than a craft show. my toys do really well there, people consider them "shower gift" items, not something you buy in a toy store - the animals run from $60-100.
Same for clothing - i sell more newborn items than toddler clothing - more people are willing to buy $100-$200 clothing items as gifts than for their 5 year old to use in the playground.
When I've sold things at craft shows i generally need to lower my prices and count on selling only small, basic items. I have to say that knitting is such a craze right now that i get more "oh, i can make that" comments than "oh, i really like that."
i find doing the shows to be a lot of fun, though, and i'm willing to take a hit on the price because i enjoy doing them. there i sell more small pocket toys (dolls, snakes, frogs, beanbags) leg warmers, dishtowels, etc. i've found at the shows i've been to that people aren't spending more than $50 for an item at a show.