Final answer:
The theory that predicts that trade occurs because of differences in the availability of factor inputs across countries and the differences in the proportions in which the factor inputs are used in production is known as the theory of comparative advantage.
Step-by-step explanation:
The theory that predicts that trade occurs because of differences in the availability of factor inputs across countries and the differences in the proportions in which the factor inputs are used in production is known as the theory of comparative advantage. According to this theory, countries should specialize in producing goods and services in which they have a lower opportunity cost compared to other countries, and then trade with other countries to obtain goods and services that they cannot produce as efficiently.