Business owners in smaller communities often object to the construction of new Wal-Marts, claiming that the competition hurts their businesses. Wal-Mart has more recently opened stores in larger communities. There are relatively few protests from small business owners in the larger communities. Explain why not.A number of students asked me to clarify the question. The phrasing strikes me as straightforward enough. Small business owners in larger communities don't object to Wal-Mart. Why not? I'm pleased that students exercised their right to have the point of a question clarified, and at the same time startled that not objecting -- why not? is too daunting.
A successful answer will demonstrate understanding of Adam Smith's observation, The Division of Labour is Limited by the Extent of the Market. Don at Cafe Hayek has one piece of the puzzle. The missing piece is what higher-valued tasks that labor is freed up to do. In bigger cities, it might be freed up to sell O Scale trains that Wal-Mart has never bothered to stock. In larger cities, there are sufficient trading partners (we'll later think of them as customers) to make operating a store to sell such things profitable. The small business owners in smaller towns are looking for trading partners interested in more mundane goods, and Wal-Mart has figured out how to move a wider variety of mundane goods more cheaply.