ii - stable equilibrium:  a condition which once achieved continues indefinitely unless there is a change in some non-economic conditions.  Changes in economic conditions will be followed by reestablishment of the original equilibrium. Example: ball resting at the bottom of a cup; shake it and the ball returns to the bottom; and,

iii - unstable equilibrium: a condition which once achieved will continue indefinitely unless one of the variables (economic or non-economic) is altered, and then the system will not return to the original equilibrium and will not come to rest unless there is further alteration of a variable.  Example: ball resting on the top of an overturned cup - shake it and the ball falls off never to return to the same place.

2. Elasticity
    Elasticity refers to the sensitivity of a variable to change in another variable.  It measures the response of one variable to a 1% change in another.  Unlike the constant slope of a straight line which is measured ΔY/ΔX or rise over run, Elasticity varies along a straight line (P&B 7th Ed Fig 4.2 & Fig. 4.4) and is measured  (Y₂-Y₁/Y)%/(X₂-X₁/X₁)% or the % change in the value of Y divided by the % change in the value X.  Economic theory recognizes three principal types of elasticity:

i - income elasticity of demand - with all prices constant refers to the percentage change in the quantity of a commodity demanded compared to a percent change in income (P&B 4th Ed. Fig 5.8h; 7th Ed not displayed):

Income Elasticity of Demand = %ΔQ/%ΔY   

ii - price elasticity of demand or supply - refers to the percentage change in the quantity of a commodity demanded or supplied compared to a percentage change in its price (P&B 4th Ed. Fig. 5.3 & Fig. 5.11; 7th Ed Fig 4.3 & Fig. 4.8).  In the case of demand elasticity, however, an increase in price causes a decrease in quantity, that is the demand curve is negatively sloped.  Accordingly, elasticity would b negative.  However, elasticity is always reported in terms of its absolute value regardless of sign (except for inferior goods in calculating the cross elasticity of a complementary or substitute good - see below).

    The amount demanded or supplied can increase:

• more than proportionately, i.e. elasticity is greater than one - at the extreme a horizontal demand or supply curve is perfectly elastic - a small increase in price results in a large change in the quantity demanded or supplied;

• proportionately, i.e. elasticity is equal to one (unitary elasticity); or,

• less than proportionately. i.e. elasticity is less than one (inelastic) - at the extreme, a vertical demand or supply curve is perfectly inelastic - any change in price results in no change in the amount of the commodity demanded or supplied; and,

Price Elasticity of Demand = %ΔQ/%ΔP   

Price Elasticity of Supply = %ΔQ/%ΔP   

iii - elasticity of substitution or cross-elasticity refers to the percentage change in the amount of an input substituted for another in response to a change in their relative prices (P&B 4th Ed. Fig. 5.7; 5th Ed. Fig. 4.7; 7th Ed Fig.4.6).  Similarly, the percentage change in the amount of a commodity substituted for another by a consumer in response to a change in their relative prices.