DF doesn't really have an economy currently. The one that's there is disabled by default because it was considered not to work sufficiently well. Work on an economy is intended to be performed in a middling DF future (i.e. hopefully within the latter half of a decade).
However, I agree availability and suitability are reasonable grounds for the usage of metals and other resources (although the number of gold and platinum armors and weapons won't be changed significantly, given that those are artifact metals only for these classes of items).
The game currently determines the resources available to each site government (although volume isn't calculated, nor is consumption, so there's no support for mines getting depleted). This is used to determine the metals available for armor and weapons, I believe (may also show up in adventure mode, but I don't know about that mode), while civ level resources are determined statically based on what's available to the founding site's government, and is currently not updated to reflect expansion to additional sites. This determines which goods their caravans may bring, as well as the materials available for items for your starting 7. Note that I may be wrong about whether site governments actually make use of their resources, or whether the civ one is used throughout, in which case the site government level one may remain unused, but I think goblin invaders have different materials depending on which site the raid comes from (troop availability definitely depends on the site: a civ having blizzard men and ogres does not send those on all raids).
There's also a civ level component to availability: only dwarves have access to the steel making technology, and so are the only ones with access to steel. A current deficiency in the system is that alloy availability is not dependent on whether the base resources are actually available, so dwarves always have access to steel and bronze (and other alloys), even if they may lack e.g. iron and copper.
Kobolds are currently fudged, and so may actually wield steel knives (although you can consider those to have been stolen from dwarven civs, if you want).