Final answer:
The weak form of the efficient-market hypothesis suggests that current stock prices fully reflect all historical price information, thus past data cannot be used to predict future price movements. Market efficiency in economics is a specific concept and real-world complexities such as income distribution and imperfect information can lead to market failure despite the hypothesis.
Step-by-step explanation:
The weak form of the efficient-market hypothesis asserts that all historical prices and data are fully reflected in stock prices, and that past price movements cannot predict future price movements. This suggests that investors cannot achieve higher returns through investment strategies based on past stock prices or returns.
It is important to understand that the notion of market efficiency is used in economics in a specific sense, not as a general indicator of 'desirability'. Factors such as consumer purchasing power, which is influenced by income distribution, can impact the overall efficiency of a market. For instance, if consumers have insufficient income, they may be unable to afford essential goods and services, irrespective of how efficiently the market operates.
Furthermore, despite the efficiency suggested by the hypothesis, real-world markets can fail due to several reasons. Lack of competition, inadequate information, immobile resources, non-production of public goods, and externalities are seen as forms of market failure. In addition, imperfect information about product quality makes the market less efficient than the ideal scenario depicted by the efficient-market hypothesis.