5

4. Assume that the current global demand for fossil fuel (in billions of barrels per year) is given by the equation:

Q = 400 - P

and the current world supply of oil is given as

Q = -100 + 4P

If the dollar value of the marginal environmental damage associated with burning fossil fuels is given as

MD = 1.25Q

what is the increase in social welfare associated moving from the market allocation to the efficient allocation?