Steve had said the following: "The reason we [won't] make a 7-inch tablet isn’t because we don’t want to hit [a lower] price point," Jobs said. "It’s because we think the screen is too small to express the software." This was before the Retina display, and of course, developers have had some time to redesign apps for tablets and perhaps everyone learned something about smaller tablets.
More significantly, a apple can no longer ignore the inroads Amazon has made with their smaller, $200 Kindles and Barnes and Noble's nook. And Alan Kay, the founder of the DynaBook concept, the precursor to today's tablets and laptops, said the following at the iPhone's announcement: "Make the screen at least 5″x8″ and you will rule the world." With the iPad and now iPad mini, Apple is on their way!