Question 2:
Consider an economy in which only two goods are produced, each with labour
and capital and a different type of land. Suppose that the government
imposes a tax on land used in the production of one of the goods, leaving
land used in the production of the other good untaxed, and then randomly
distributes the proceeds of the tax to members of the community in lump-sum
fashion. The effect will be to reduce production of the good that is taxed
and increase production of the other good, thereby reducing the level of
utility.
True or False?