"Do not speak to me of dragon fire"

[Zigûr]

Originally Posted by Inziladun

The thing is, the Elves in Mirkwood weren't isolated at all. They had a thriving trade with Lake-town. Their problem was specifically with Dwarves.

EDIT: Oddly enough, in "Flies and Spiders" the narration states of the Elvenking "His people neither mined nor worked metals or jewels, nor did they bother much with trade or with tilling the earth." Seems an odd thing of Professor Tolkien to write – if they traded little, but also didn't mine and smith their own metal or grow much of their own food, how did they eat and maintain their armouries? Perhaps someone with a copy of The History of The Hobbit can provide some enlightenment here. I suppose it's possible that he means that the Elves of Thranduil's Halls didn't do this because that was essentially the "king's castle" and matters of trade and industry were handled at the settlements down the river, such as the ones that managed the wine rafts between Mirkwood and Esgaroth.

In the first "Hobbit" film (filling in because you haven't seen it) they unnecessarily try to explain why Elves and Dwarves don't get along. The real answer has to do with the slaying of Thingol (and to an extent the awakening of the Balrog) as we know.

However, the film explains it by saying that Thranduil and his Elves showed up to watch Erebor being attacked by Smaug but did nothing to help. Who knows why they would have bothered showing up to watch; it's just one of the many daft things that happens in the film, in my opinion for the sake of forced "drama".

Thus they later have to explain why Thranduil didn't help, when they wouldn't have had that problem at all if they'd just thought "audiences will accept that Elves and Dwarves have often struggled to be friends".

Frankly I don't see why they couldn't have told Lee Pace "your character is a very old, very proud Elf with a bit of a weakness for beautiful things; his extended family were in conflict with Dwarves long ago so he doesn't trust them much."

I think it is probably a symptom of the films trying to be like The Lord of the Rings by having a large ensemble of major characters, when The Hobbit really has one main protagonist, Bilbo, arguably one secondary protagonist (Thorin) and a lot of supporting characters (Gandalf, Balin, the Elvenking, Bard, Beorn and so on). It wants to give each of them a personal, dramatic story like Théoden or Denethor. The films also rather contemptibly turn Bilbo into a supporting character in his own story, and lavish most of their attention upon Thorin, meaning that his antagonists, such as the Elvenking, need to be fleshed out more. This also presumably helped them to bloat the project to a trilogy as per Warner Bros.' request.