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?