Final answer:
In the provided economic scenario, factory owners would theoretically spend up to $2 million to oppose a pollution tax, while townspeople would theoretically spend up to $3 million to support it. However, due to the difficulties of collective action and the incentive for individuals to free-ride, society is unlikely to reach the optimal outcome of sufficient public support for the tax.
Step-by-step explanation:
When we consider the scenario presented, we're looking at a classic example of public economics and the collective action problem. The small town of 10,000 people is potentially receiving a tax on carbon emissions that would benefit each resident by the equivalent of $300 due to reduced pollution. This leads to a theoretical total benefit of $3 million for the town residents. Meanwhile, the factories stand to lose $1 million each, making their total potential loss $2 million.
The factories' owners would be rational to spend up to just under $2 million to fight the tax to break even. On the other side, the townspeople would theoretically be willing to contribute up to $3 million in support of the tax implementation. However, the issue of free-riding and the dispersed nature of the benefits among the large number of residents means that organizing collective action is difficult. The residents are less likely to contribute significantly to the tax support, as the cost of organizing and the small individual gains compared to the effort required to secure those gains do not line up.
This illustrates why society might not achieve the optimal outcome - the communal benefits are not sufficient to motivate individual financial action, especially since the benefits are public goods that individuals can enjoy whether they contribute to the cause or not. This creates an imbalance, favoring the factories which have a concentrated interest and more at stake individually, making it more likely for them to spend resources to oppose the tax. It demonstrates an instance of market failure where individual incentives do not align with the collective good.