Final answer:
A violation of the EMH implies that arbitrage opportunities exist, as prices in such a scenario would not reflect all available information. Markets need full information amongst buyers and sellers to reach an efficient and fair equilibrium, but in practice, information can be limited and income inequalities can distort this process.
Step-by-step explanation:
The Efficient Market Hypothesis (EMH) asserts that at any given time, security prices reflect all available information, meaning that it's impossible for investors to consistently achieve higher returns without taking on additional risk. A violation of the EMH implies that arbitrage opportunities exist because if prices do not reflect all available information, adept investors could exploit this inefficiency to earn anomalously high returns. This contradicts the options that state market prices reflect all available information and that investors are rational, both of which are tenants of the EMH.
When considering the fairness and effectiveness of markets at reaching equilibrium, it is important to take into account whether sellers and buyers have full information about the product's price and quality. In reality, transactions in markets can be affected by distortions such as unequal income distribution, which limits certain consumers' ability to pay for goods and services. Therefore, even though markets can be efficient in theory, in practice they may not always achieve equilibrium in a way that is considered fair or effective, especially when there is limited information.