Slope of Curves

The slope of a curve is the feature of a graph that conveys to the reader information on responsiveness to price changes.  Below you will see two demand curves.  The first demand curve is quite flat while the second is rather steep.   When we draw a flat curve we are telling the reader we believe demand is quite responsive to price - price has a substantial effect on the quantity demanded.  In this example, a relatively small change in price (P0 to P1) will generate a substantial change in quantity demanded (Q0 to Q1).  This is likely to be the situation facing a Mobil gas station at a busy intersection where there are four gas stations (Mobil, Shell, Exxon, and Citgo).  If the Mobil station raised its price, customers would pump gas at the other stations so we would expect a price rise to  substantially lower demand.

Responsive Demand

In the second diagram we have drawn a relatively steep demand curve.  When we draw a steep demand curve we are telling the viewer demand is not very responsive to price changes. In this example, a relatively large change in price (P0 to P1) will generate a small change in quantity demanded (Q0 to Q1).  This is likely to be the situation facing the gas industry.  If the industry raised its price, customers would still need to pump gas so we would expect a price rise to have a minimal impact on demand.

Unresponsive Demand

Two extreme cases would be when the curves are horizontal and vertical. A vertical demand curve would be called a perfectly inelastic demand and it tells us demand is completely independent of price.  Demand is what it is and a change in the price will not change demand.  A horizontal demand curve would be called a perfectly elastic demand and it tells us demand is completely dependent on price.  In this situation we are describing a situation where the buyers will buy any amount at a specified price, but at any higher price they will buy nothing.

The same interpretation can be applied to supply - a steep curve indicating that supply will not respond significantly to price changes while a flat curve indicates that a price change will substantially alter supply.  I will leave the detailed analysis to you.