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Este sombrero es muy caro.

Este sombrero es muy caro.
This hat is very expensive.
From Lesson 72:Demonstratives (este, ese, aquel)·Spanish (Spain)

Questions & Answers about Este sombrero es muy caro.

Why is it Este and not Esto?
You use Este because it is a masculine adjective directly modifying the masculine noun sombrero. Esto is a neuter pronoun; you only use it when you don't know what an object is or you are talking about a general idea or situation, not right next to a specific noun.
How would this sentence change if the hat was further away from me?
Este means the hat is right next to you or in your hands. If the hat was a little further away (perhaps near the person you are talking to), you would say Ese sombrero (That hat). If it was far away from both of you, you would say Aquel sombrero (That hat over there).
Why do we use es instead of está to talk about the price here?
You use es (from the verb ser) because being expensive is treated as a core characteristic of this particular hat. You generally only use estar for prices if the price fluctuates daily and you use the preposition a (for example, Las manzanas están a dos euros hoy, meaning apples are at two euros today).
What would happen to Este and caro if we were talking about a shirt (camisa) instead of a hat?
Both words would change to their feminine forms to match the feminine noun camisa. Este becomes Esta, and caro becomes cara, making the sentence: Esta camisa es muy cara.

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