I'm only a lay person who struggled to get a B in college physics. For the other person to travel at the same speed with a smaller wheel, yes, he would have to pedal faster, but he would have a mechanical advantage with the smaller wheel, just as you would being in a lower gear... So yeah, the person with the 700c wheel has to exert an extra amount of energy to travel at that speed, as if you were traveling in a higher gear.