Depends on where you want to stay and how long you stay. The cheapest AirBnB options where we wanted to travel to were in the $80-100/night range, and the legit hotels were frequently in the $150-250/night range for tiny rooms and very few amenities. There wasn't much in the way of "nice hotels" outside of Reykjavik and maybe Akureyri. One couple we met stayed at a hotel near Lake Myvatn for $250 a night, and they said it was essentially a Pod storage unit with a bed and a dresser and a mini-bathroom with standing/corner shower - since it was pretty remote and an hour away from anywhere to get food, they ate in the hotel restaurant and paid another $180 for a mediocre dinner. We stayed in one hotel near Vik for $160 that had a queen bed and about 18 inches of space around that bed to the walls - with a tiny bathroom and the smallest shower I've seen outside a hostel. We stayed in 4 AirBnBs and 2 hotels, and the AirBnBs were far nicer than the hotels for about 60-75% of the cost.
As I mentioned above, gas is around $7/gallon, and the ring road itself is just shy of 850 miles if you're looking to do the whole loop (plus any trips off the loop to see any sights). I think we spent something like $450 in gas for the week we were there. We drove to the places we wanted to see instead of paying for excursions - so I can't speak to the cost of day trips and whatnot.
Entrees at the restaurants we looked at ranged from $30-80, and alcohol was expensive (e.g., $10 beers/$15 drinks). A six pack of Einstock at the duty free in the airport was >$20. I think we only had maybe 2-3 drinks on our whole trip. We would buy groceries when we could. Regular groceries weren't so bad, and we came to love skyr, but certain "staples" we looked at went for really high prices (e.g., pound of bacon was like $20). We asked one family that we were renting an AirBnB from what a good restaurant would be, and they said they didn't really know because they never eat in restaurants.
Iceland's economy relies primarily on tourism, geothermal, and fishing. They definitely get a large chunk of change from tourists passing through.