Answer
a) An example of insider trading would be knowing ahead of time of a very likely merger or acquisition. The merger or acquisition would increase the revenue for the new company (and thus increase the statistics used to determine the value of the company).
Work Step by Step
b) This fact doesn't violate the efficient markets hypothesis. The people who use inside information for trading are using information that isn't publicly available. The efficient markets hypothesis deals with publicly available information.
c) Insider trading is illegal since the information used is not readily available to all shareholders. Also, when the insider trades, they exert a force on the stock's price that is driven by psychology (since the inside trader thinks the stock will increase or decrease in price), which is just more of the animal spirits.
