What do economists mean by excess demand?

Answer:
The quantity demanded of a good or service in a particular market exceeds the quantity supplied when there is excess demand. We often draw a line at a given price level on a graph, from the quantity supplied curve to the quantity demanded curve, to show the magnitude of a shortage that is created by this situation. Consumers are willing to buy more than this market is willing to supply, and so the price is bid up. As the price rises, more producers will be willing to shift more resources toward the increased production of this good or service.

Local government in, say, Markham, Ontario, is very slow in processing developers' applications for new housing applications. In addition, much of Markham is on the ecologically sensitive Oak Ridge Moraine and, in 2001, the provincial government puts a six-month freeze on any new developments in the Moraine to protect the forests, aquifers, and wildlife. More and more young couples wish to leave rental accommodation, but cannot find suitable houses to buy. Prices move up sharply during the freeze, as buyers bid up the price of a limited supply of new units. However, the provincial government lifts the freeze on non-sensitive land, and the town of Markham speeds up its applications process. Developers start to supply new units to meet the excess demand. Some older couples sell their homes and move to local condominiums, which are managed efficiently for them. As the quantity supplied increases, the quantity demanded falls again, until a new equilibrium price is established.