The simple answer is profit margin.
According to IHS, an analytics firm that does teardowns and estimates bills of materials for iPads, iPhones and other products, going from 16GB to 32GB of NAND flash memory would've cost Apple around $10 in September 2014 -- so probably even less almost a year later, with prices for memory drifting downward. Yes, that's a significant sum when you consider that, according to those aforementioned teardowns/bill of materials estimates, it costs Apple around $200 to build an iPhone 6 and $215 to build an iPhone 6 Plus.
Better yet -- for Apple anyway -- it costs you $750 to buy the 64GB iPhone 6, which conservatively costs Apple about $20 more to make than the 16GB version. From a margins standpoint, the 64GB and 128GB iPhones are by far more profitable, so Apple doesn't really want you to buy a 16GB iPhone.
And the numbers show that Apple's plan to push consumers to the more expensive models is working. The average selling price for an iPhone in the final quarter of 2014 (when the iPhone 6 and 6 Plus first debuted in bulk) was $687. By comparison, the average selling price of an Android phone during the same period was less than half -- just $254. That's the primary reason Apple is the most valuable company in the world even as Android phone manufacturers struggle to make a profit.
Apple should kill the 16GB iPhone, but it probably won't - CNET