Final answer:
The weak-form EMH suggests that all past trading information is reflected in current stock prices, making it impossible to outperform the market by trading on that information. Markets are efficient in allocating resources but not always fair, and perfect competition cannot always be achieved, partly due to unequal income distribution.
Step-by-step explanation:
The weak-form Efficient Market Hypothesis (EMH) posits that stock prices fully reflect all currently available information contained in past trading data, such as the history of past prices, trading volume, or short-term rate of return.
According to this form of EMH, it is impossible to gain an advantage in the market just by trading on historical market data because any information contained in the past is already reflected in the current market prices.
Markets play a crucial role in the allocation of resources, as confirmed in discussions about international trade and demand and supply. However, while they are efficient in some ways, markets may not always be completely fair or effective at reaching equilibrium. The market's efficiency is related to information dissemination and how quickly and accurately prices can react to new information.
Efficiency in economics is specific to how well a market can provide goods at the lowest cost and how well it allocates its resources. Allocative efficiency is when the goods produced are aligned with consumer preferences, whereas productive efficiency is when goods are produced at the lowest possible cost.
Both forms of efficiency on fair and open markets, but skepticism is warranted because a perfectly competitive market cannot always achieve this. Income distribution and consumers' ability to pay can impact how products and resources are allocated.
An example of market analysis can be seen when an economist creates a model to predict outcomes on the stock market. By comparing the model's predictions with actual market outcomes, analysts can evaluate the effectiveness of their models and, in a broader sense, assess the market's efficiency.