The correct answer is: C. stable in the Marshallian sense but unstable in the Walrasian sense.
In the Marshallian sense, stability refers to the ability of the market to return to equilibrium after a disturbance. In the Walrasian sense, stability refers to the ability of the market to reach equilibrium in the first place.
When both the demand and the supply curves slope downwards and the demand curve is steeper than the supply curve, the equilibrium is stable in the Marshallian sense but unstable in the Walrasian sense. This is because, if the market price is above the equilibrium price, the quantity demanded will be less than the quantity supplied, and the market price will fall. Conversely, if the market price is below the equilibrium price, the quantity demanded will be greater than the quantity supplied, and the market price will rise. However, if the market price is not at the equilibrium price, the market will not necessarily reach equilibrium. This is because, if the market price is above the equilibrium price, the quantity demanded will be less than the quantity supplied, but the suppliers will not be able to reduce their output immediately. As a result, the market price will remain above the equilibrium price for some time. Conversely, if the market price is below the equilibrium price, the quantity demanded will be greater than the quantity supplied, but the buyers will not be able to increase their demand immediately. As a result, the market price will remain below the equilibrium price for some time.
In conclusion, the equilibrium is stable in the Marshallian sense but unstable in the Walrasian sense. This is because, if the market price is above the equilibrium price, the quantity demanded will be less than the quantity supplied, and the market price will fall. Conversely, if the market price is below the equilibrium price, the quantity demanded will be greater than the quantity supplied, and the market price will rise. However, if the market price is not at the equilibrium price, the market will not necessarily reach equilibrium.