Question

From an economic efficiency standpoint, what response would you give to people who lament when a big box store such as Lowes or Wal-Mart enter a small town and drive the small mom-and-pop stores out of business?

Answer 1

Big retailes like Wal-Mart has an economic scale. Economic scale refers to the cost advantage received by a firm because of producing at a large scale. Because of economies of scale, many large firms produce at a lower average total cost i.e. they use fewer resources to produce each unit of product. This is economically more efficient as large firms such as Wal-Mart can meet the demand of consumers at a lower cost and by using fewer resources. This is a win-win for consumers and the larger society as well.