Why is Hosted Disk Space So Expensive?

dhclab49 asks: "Recently, I wrote a data-driven web application for a customer, and when it came time for them to select a hosting company, what I found was that most hosting companies charge a LOT for disk space. Most of them have accounts for $10-$30 per month, a bit more if you add in a database account. However, they almost all limit you to around 250MB of disk space, with extra space costing like $1/month per additional MB of storage. The app I wrote manages the customer's workflow and is meant to allow them to generate PDF documents and store them online, so I really need a few gigs. In an era where hard disks cost about a buck a gig and are getting cheaper by the day, how can hosting companies charge $1000 per gigabyte per YEAR?! And are there any alternatives out there for hosting a data-driven website at a reliable datacenter with a few GB of space for under $500/mo?"