My character will be from Cauldron so I've been trying to get a handle on the place. I can infer alot about the city from what you've written here but I keep comming up with more questions. Let me summarize what I think I've figured out so that you can correct any bad assumptions and then I'll move on to the questions.
From what you've written, the crater where Cauldron lies is 4 miles in diamater or about 12.5 square miles, 7 of which are city and 5.5 of which are farmland. That translates to about 4500 acres of city and 3500 acres of farmland.
According to this study ( http://dspace.mit.edu/bitstream/1721.1/11311/1/33041255.pdf [page 11] ) the average mideval city had a population density between 40ish and 70ish people per acre. I'll be generous and say Cauldron is a pleasant place that averages only 40 people per acre. That gives the city a population of around 180,000 people.
Now, it takes about 1 acre of farmland to feed a person for a year. (Actually we use about 1.2 acres per person in America. Assuming that magic solutions are approximately as effective as modern farming methods and pesticides 1 acre per person is reasonable.) Assuming that a family of 5 can handle 15 acres of farmland, we need an additional 400 square miles of farmland to feed our city plus all the additional farm workers (88,000 people or so).
That's not particularly unreasonable. The blast from Mt St. Helen's rained ash on 230 square miles surrounding the mountain, creating what should eventually be rich volcanic soil ( http://pubs.usgs.gov/fs/2000/fs036-00 ). However, the crater at St Helen's is tiny compared to the crater at Cauldron (about 2 square miles vs. Cauldron's 12.5 square miles), so we can assume that the ejected volcanic material (and resultant prime volcanic soil farmland) was significantly greater at Cauldron.
So, if my guesses are correct, Cauldron is part of a community consiting of several villages and many farm surrounding the mountain on which it resides. If you throw in some hunters, trappers, tanners, forresters and other sundry folks you get a regional population of 250,000 to 300,000 people. I think that about sums up my inferrences about Cauldron. What follows is speculation.
I can't help but wonder why people bothered to settle the mountain crater when there was so much excellent soil around the base of the mountain. Three possibilities come mind however, first, defensability, second, hot springs, third, growing climate.
Defensability is obvious. It's a lot of work to march an army up the side of a mountain and the whole valley could be defended by a wall on one side (the crater walls would make the other sides unapproachable).
Hot springs could certainly exist in the crater. a few cracks in the bedrock that went down to where the volcan was still hot could make some pleasantly hot pools. Perhaps people attribute healing properties to them. I can certainly see lords and other wealthy folks building winter homes there to take advantage of the pools.
Local climate is a possibility as well. Perhaps the high elevation and rich volcanic soil make the perfect climate for vinyards or some other rare and valuable crop. The crater walls would certainly make the ideal place to dig vaults for aging wine. If so then we can certainly assume that the entire available farmland in the crater is devoted to such crops.
Ok, so, over time this little winter retreat called Cauldron grows. A university is built. Maybe some gemcutters move in to take advantage of the rich natural source of obsidian. The temples and other artisans follow and before long Cauldron is a genuine city. However, it still has to do business to survive. Tons of food is hauled up the mountain. What get's hauled back down to bring money back into Cauldron.
It doesn't make any sense for the Artisans of Cauldron to have more materials (wood, leather, whatever) hauled up than they can use an sell locally. When you include transport costs they can't compete with artisans who live closer to their materials. There might be a few obsidian goods exported, gemstones and possibly blades (an obsidian blade plus a Shatterproof enchant [400 pts] is equal to a "fine" quality steel blade, at it will defeat the Steelwraith spell) depending on whether such weapons are ecconomical.
Wine is one obvious answer. With 3500 acres of vinyard there is probably enough available to export. Another answer is enchanted good. With a high mana world and assuming Cauldron has a university there is probably an abundance of magical talent.
Since both mages and non-mages are taught magic there is another possibility for talented non-mage artisans. The Inspired Creation spell has no magery requirement and no prerequisites. The result of a successful casting of this spell is always a masterwork item (very fine). This may allow some of them to make goods of sufficient quality to compete with artisians outside of Cauldron even when you take materials transportation costs into account.
Ok. What follows is a random bunch of other questions.
- Are any of the races in your world interfertile?
- What is the terrain around Cauldron like? Is it mountainous or is Cauldron on one of those solitary mountains?
- Is the volcano under Cauldron still active? If so, how active?
- Are there any rivers that flow near Cauldron that are used for trade?
- Are there any cold natural springs at the top of the mountian near Cauldron? (seems unlikely to me) If not then the outflow of the hot springs (if they exist) could be used to move sewage. However, this means Cauldron will need underground sewers to avoid the constant smell of turd soup.
- Are there any legal issues with carrying weapons in Cauldron? Since most of the population has to spend two years in the army it seems like they might limit some categories of weapons to veterans or soldiers. Of course anyone could need a knife or staff and such, but there would be little need for a broadsword inside Cauldron's walls outside of training.
- Not to be indelicate, but does the Red Temple charge for their services? If they don't it could have a significant effect on the lower class ecconomy.