This is a risky way to make money, and not recommended. Tell a player that if he beats you in a duel you will give him 10 gold, but if you beat him he has to give you 5 gold. This can be very effective if you are skilled in PvP and make the bet with a trustworthy person, or friends. It is a very risky strategy, as you may lose gold, or the other player won't cough up the money anyway. You will also get a bad reputation if you don't cough up the money in the case of defeat.
Unless low quality items have some known quest use or are coveted by other players, you should try to sell it as soon as possible to create bag space. Always (or almost always, see above exceptions) keep things like cloth, leather, herbs, or large stacks of white/gray items over other loot when you have to decide what to keep when your bags get full. It might be worth your while to invest in larger bags (10-20 slot), especially if you know a tailor.
2. Once you have an interested buyer, stay firm in your price. This does not mean to never make them feel like they are getting a bargain. You can subtract 5% off the price and not be hurt as long as you still make a profit! Remember this, as that 5% may not be a big deal to you, but the buyer will feel special and might buy the item for the slightly reduced price. I can not emphasize enough that this is not the same as undercutting! Do not drop every good every time or you develop a reputation as a soft seller and people take more liberties in their dealings with you. If you give someone a constant 5% discount, then they begin to want 10% and then 15% until you no longer make a profit. Discounts are used when you feel that the seller may be pulling away and you really want to just profit and move on!