Rubywoo - this is a huge problem I have seen as well. A friend asked me to make a cloak for him for Halloween and Renaissance fairs - he said that to buy one would cost him about $200. So, because I let the fact that he is a friend get in the way, I ended up shelling out an extra $10 for supplies over the fabric he purchased, and 4 hours of labor for $30 (that had to cover the $10 I spent as well).
That was it for me - I should have asked him for at least $60-70 for the work and personal cost, but I was too nervous and worried. Never again.