It all comes down to supply and demand.
Only true for a "perfect" market - one where everyone has similar access to products and everyone has been fully informed. Otherwise, the majority of buying/paying decisions are skewed by all sorts of other factors.
The used camera market is almost entirely about wants, not needs - so the prices are not logical, so are they much affected by standard supply and demand factors. Or to say it differently, all the supply and all the demand is localized to the particular buyer.
I take at least part of the question raised by the OP "Is some gear so cheap
that it is causing harm?"
And I'm not sure that I know the answer, although certainly some very good camera gear is ending up in recycling bins, rather than being put to use.
And as for the need for purely mechanical cameras for students, the reason isn't so much about the cameras themselves, but because of the realities of classroom/group teaching.
Just think how difficult it would be to put together teaching materials about exposure if your students all had different cameras, with different implementation of exposure control, viewing and focusing system. As an example, how would you design a lesson about metering and setting exposure manually to take into account the fact that a student had a Canon A-1, where the meter
turns off when you switch the camera to manual.
If every student has a Pentax K1000, or Minolta SRT-101 or Olympus OM-1 or Canon Ftb or (pick a manual metering camera) then with very little difficulty a teacher can teach a lesson and everyone can apply it.