In fiction, stimulus and response work like a ping-pong game. They make you look at the line-by-line progression of a story.
Stimulus is external, and so is response, and as such they must be shown on the page. Action and dialogue are key. However, action can include a character interacting with the setting, showing an emotional response, or describing a sensory input. So long as these are ‘shown’, not told.
Character thoughts do not create an external stimulus or response.
So let’s have a closer look. The first stimulus might be an event or action which affects Character A. Character A responds. Their response creates a stimulus for Character B. Character B responds, which in turn becomes a new stimulus for Character A.
For example we could take the following initial stimulus: