Final answer:
The welfare effect of a specific tax can be measured by considering the costs and benefits to both the factory owners and the townspeople. The factory owners should be willing to spend an amount less than or equal to the reduction in their profits to fight the tax, while the townspeople should be willing to pay an amount less than or equal to the benefit they will receive from the tax.
Step-by-step explanation:
In this scenario, the welfare effect of the specific tax can be measured by considering the costs and benefits to both the factory owners and the townspeople.
The factory owners should be willing to spend an amount less than or equal to the reduction in their profits in order to fight the tax passage. In this case, since their profits will be reduced by $1 million each, they should be willing to spend an amount less than or equal to $1 million to fight the tax.
On the other hand, the townspeople should be willing to pay an amount less than or equal to the benefit they will receive from the tax, which is estimated to be $300 per person. Therefore, the townspeople should be willing to pay an amount less than or equal to $300 per person to support the tax.
Society is unlikely to achieve the optimal outcome because the factory owners will not be willing to spend the exact amount necessary to fight the tax, and the townspeople will not be willing to pay the exact amount necessary to support it. Additionally, there may be other factors such as lobbying and political influence that can affect the outcome.