How did the increase in trade result in the growth of towns and cities throughout Europe?
The increase in trade helped enlarge towns and cities in Europe because it gave the towns and cities an economic base upon which to grow.
When there was very little trade in Europe, there was very little reason to have towns. Almost all people lived on small farms, grew most of what they needed themselves, and traded with their neighbors for what they could not make. There was not much of a need for towns because no one needed to buy things from a central place.
As trade grew, towns became more important. Towns became places where people could live and produce or gather goods to be traded. They became places where merchants could come and buy goods from the townspeople and sell them goods from elsewhere in return. It was much more efficient to do this in towns than, for example, by travelling around to scattered little hamlets.
Trade is associated with urban places. Town and city dwellers produce and/or collect goods to be traded. As they make more money doing things like this, they become customers for goods that are traded from other places. Thus, towns and cities grow when trade increases.
Economic gain has been a strong indicator of human activity for centuries. Increased trade can be examined through markets and labor need. People will gravitate to populated areas when trade increases because increased trade usually correlates with manufactured goods. Manufacturing requires laborers to fill unskilled jobs. People move to towns and cities to acquire work in manufacturing.
In addition to low-skilled labor, increasing trade activity will attract entrepreneurs to the urban areas. This has been true dating back to ancient times when merchants would sell their wares at trade towns throughout the Mediterranean. For merchants to make money, they need to be near the consumers. Consumers are located in high population areas.
Increased trade activity also has the potential to bring immigrants to cities that can fulfill the roles of unskilled laborers or entrepreneurship.