Guys, one thing that may help quell this is transport costs. Caravans are bringing your goods up into the mountains an mule-back. They are bringing your finished products out the same way.
Tacking the cost of transportation on like a tariff will lower the relative prices of things like your giant stack of masterwork pantyhose (Because hauling it down the mountain to someplace where people need more is expensive enough that your haulers can pay comparative value to the nobles on the other side of the continent, especially considering the nobles have their own tailors.) Basically, primitive trade technologies allow for all sorts of funny behaviour at the Trade borders. The caravans would be relying on this fact for their profits. (That means you sort out the wierdness Squirrel was worried about behind the scenes with the Traders, and everything is presented to you in fort prices. They just don't bring (out) anything that the prices in the outside world are higher for. Remember, the Caravan drivers are monopoly sellers to your fort as far as the outside economy is concerned.
Transport costs also reenforce the slope of the price changes. It doesn't take too many mugs at 10$ a mug to saturate the local market, but not only are there more locals willing to buy the mug at 9$, if the merchant can get it for that, he can cart it 1$ in transport costs further to a whole new market of 10$ folks. This allows a precipitous dropoff on the first load, but will allow the prices to settle in to a nice stable relationship (as long as you keep producing the same amounts)
Since the world isn't currently running outside your fort (temporary, I know), it should be easy to calculate the model for the whole world once at embark, and have your changes be the only effects. This makes a good short term solution of code that isn't wasted (coming up with the simulation is still coming up with the simulation). It would simply amount to the export curves for various products. Long term reusables (musical instruments) would fall fast and stay down for a long time, while replacables (mugs and swords) would have stable per-cycle output maxes.
As a second level sim, you'd eventually want monopoly behaviours and the price rising over time as you put competitors out of business, but that's arguable and may be too complex to be fun.