If you have ever read the storyline in the original players manual,, you would realize that Ganon attacked the peaceful little town of Hyrule and Gannon's evil henchmen (Including Molblins) imprisoned Princess Zelda and and sent out a party in search of Impa. During this dark pursuit the towns people fled for saftey anywhere they could find it. Impa herself braved forests and mountains as she fled for her life from her pursuers. The setting of The Legend of Zelda actually takes place in the outskirts of Hyrule where Impa fled. If you notice very carefully, all of the merchants and the old man are now living in caves and hideouts where they fled for safety from Ganon and his evil henchmen.