An equilibrium is unstable if a price above equilibrium results in excess demand or a price below equilibrium results in excess supply, because in these situations competitive forces would drive the price away from its equilibrium level instead of toward it. This would be the case if the supply curve for a good was both downward sloping and less steeply sloped than the demand curve. A normal, upward-sloping supply curve of any steepness results in a stable equilibrium at the price and quantity where it intersects the demand curve. |
