Question 3:

Consider an economy in which only two goods, one of which is food, are produced using two inputs, labour which is used in both industries and land which is used only in the production of food. It must always be the case that a tax on food production will lead to a reduction in production and consumption of food, even if the country is poor, as long as the government redistributes the tax revenue by lump sum transfers that leave the distribution of income unaffected.

True or False?