However, if someone steps in and says, "Gee, to be fair to everyone, the government should set prices!" and both Republican (Nixon) and Democratic (Roosevelt) Presidents have tried to do this in the past, usually with mixed results. While fluctuations in prices can be painful, the alternative - shortages or no products at all - are far worse.
Demand pricing applies to any commodity, be it a computer or a bar of gold. The price of gold skyrocketed in the 2000's due to increased demand. However, this demand was based on fear not on actual consumption of gold (in industry or jewelry, etc.). People were buying gold to hoard it, thinking it would be worth far more in the future.
But again, Supply and Demand kept up. Once prices went over $1000 and then $1500 and even $1800, people started mining more gold. People melted down their jewelry and got cash. Thieves stole it. The market (legal and illegal) stepped up with more supply to meet demand.
And this is where the cost of production can tell you a lot of about future pricing. According to industry sources, the price of extracting gold from a well-working mine is about $500 an ounce, which means a 100% retail markup for the commodity. It also illustrates how low gold can go before people decide to stop mining it. So if demand (which in this instance, was based on fear, and not a real need for the commodity) slacks off, well, the price could plummet pretty far and pretty fast.
Gold dropped down, as we all know it would do, and has been on a steady decline since its peak around 2011. It is little over $1000 an ounce now, which is interesting given the turmoil in the stock markets, one would think it would at least have a dead-cat-bounce by now. But psychologically, if it ever dips into three-figures ($999 and under) there could be a big sell-off, because the people who are buying it and holding it are doing so for psychological reasons.
But, so long as demand is high, the price will remain high. And the price is not determined by the cost of production, but by demand.
In stable markets, yes, prices do eventually fall to a level of "cost of labor and goods plus reasonable profit" only because, in a stable market, competition forces prices down over time unless collusion or monopoly practices occur.
It is one of those basic economic things we fail to grasp, because we are on the outside-looking-in on our economy and economic behaviors. We assume that the prices of things are based on their inherent "value" or cost of production. But they are not. They are based on demand which is ironically, the one thing the consumer has control over.
The more you want something, the more it will cost you.