That bag is so cheap -> That (저) Bag (가방) is cheap (-하다 + 싼) , so (매우 or 너무)

1. 그 (= The), 저 (= That)

So, 저 가방 (=That Bag), 그 가방 (=The Bag)

2. 은/는, 이/가 are all kind of words to connect with noun.

 this part is so... hard to explain. i'm sorry!

3. 'So' has many meaning, Such as "너무", "매우", "몹시"(but, not use frequently), ...

 "너무" has negative meaning.  

 +) If you write like this "저 가방은 너무 싸요", It means like "That Bag is too cheap."

 So "매우" is correct.

4. actually, 'cheap' is not verb, it's adjuctive. So, that sentence needs verb 'is' (-이다)

* how to different among 쌉니다, 싸요, 싸다 

 "싸다" is 'basic verb form',

       when you write like this, it doesn't have any politeness. it has just 'meaning'

       so, We can write sentence of meaning like "저 가방은 매우 싸다."  

 "쌉니다 [ (싸다) + (-ㅂ니다) = 쌉니다 ]" is the most polite expression.

   but, when we talk to voice, we don't speak like this. because it sounds like emotionlessness.

 "싸요" is also polite expression, and usually we speak like this.

So, "저 가방은 매우 싸요" is the most natural expression.