Introduction Theories of why trade occurs can be grouped into three categories Market size and distance between markets determine how much countries buy and sell. These transactions benefit both buyers and sellers Differences in labor, physical capital, natural resources and technology create productive advantages for countries Economies of scale(larger is more efficient) create productive advantages for countries3 Introduction • Theories of why trade occurs can be grouped into three categories: • Market size and distance between markets determine how much countries buy and sell. These transactions benefit both buyers and sellers. • Differences in labor, physical capital, natural resources and technology create productive advantages for countries. • Economies of scale (larger is more efficient) create productive advantages for countries