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why liquidity implies tight spread and low slippage
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theoretically, it's a question of rate of return. if a desired or acceptable rate of return for market makers' capital is x, and x is determined by the product of margin & turnover then higher turnover means lower margin for a constant x.  margin, in the case of trading, is the bid/ask spread, and turnover, in the case of trading, is volume. empirically, it has been noted in the last markets still offering such wide-varying evidence, equity options: http://faculty.baruch.cuny.edu/lwu/890/mayhew_jf2002.pdf
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