Why is art so expensive, and how is the price of a work actually set?

The price of a work is made up of the labour involved, the materials, the artist's stage of career, demand and provenance (documented ownership history). With paintings, a simple rule of thumb is often used as well: a price proportional to the area of the canvas. None of those numbers stands on its own, though — they are held up by demand and by the story that belongs to the work.