what is market efficiency?
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Market efficiency is the ability of markets to get people what they want. In the simplest sense it’s about determining how effectively we can make sure people get what they want.
In a free market the way this is done is by pricing, so if people want more of something the price goes up, or if something becomes cheaper to make the price goes down, and in this context market efficiency refers to how much these external factors affect the price of a good. For instance, if the cost to produce something goes down by 50% and the price goes down by 50% as well that would be a very efficient market. Conversely in a command economy like the former USSR you had prices set at a fixed amount regardless of external circumstances and as a result you had extremely inefficient markets that were fundamentally incapable of allocating goods to people
The efficient market hypothesis is a related concept to this and it is mostly used in stock markets and it claims that the (stock) market is perfectly efficient, that is: the price of a stock reflects all publicly available information about that company.
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