I'm with Jan. I don't think I would agree to sell things because it costs too much money and time to make even small things, and it wouldn't be worth it in the end as far as any money I could get for it. Plus it would take all the fun out of knitting for me. I've only ever knit two things for a friend of mine who offered to buy the yarn, but that's probably the last time I'd do it, unless it's a gift. When people ask me to knit them things, I just laugh and say it's going to cost them $50 and they usually leave me alone after that. I wouldn't charge anything less than $8-$10 for your dishcloth, and if they think that's too much, it's too bad because hand knitted items are expensive, and your time is valuable.
ETA: There's been some discussions on Ravelry as far as charging for knitted items. A lot of people who sell their items professionally like to charge by the yard plus the cost of yarn. So for example, if your dishcloth took you 1oo yards of yarn, and you spent $3 for the yarn, you could charge, say 10 cents a yard, which would make it about $13. So I'd say $8 is more than fair.