Why is the iPhone 5c so cheap? How does it differ from the 5s?

I've never had an iPhone before, mostly because I think they are Way too overpriced. After I heard the iPhone 5 was coming out, I decided to see how expensive it was going to be this time. The iPhone 5s reached my expections of being overpriced, but when I saw the iPhone 5c, it was only $100. How come it's so cheap? Does it work differently from the 5s? Does it give you a limited amount of features compared to the 5s?

It's only $100 cheaper then the 5s, and to get the 5c for $100 you have to get a 2 year contract. IPhone 5C with no contract is $549.

The iPhone 5S is made of high grade aluminum.
iPhone 5S has a new A7 64 bit system chip that's twice as fast as the iPhone 5 A6 chip.
iPhone 5S TouchID - use your fingerprint on the home button instead of a password.

iPhone 5C is made of hard coated polycarbonate material and steel reinforced.
It contains the same A6 processor and 8 megapixel camera as the iPhone 5.

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