Answer to Question 1
The very existence of federally funded programs for the poor may reduce charitable giving because taxpayers may rightly judge that they have already given in the form of their taxes. In other words taxpayer might take this into account before figuring out how much to give to private charities.
Answer to Question 2
In the absence of the obstacles mentioned earlier in the chapter, competitive markets use society's resources efficiently. For resources to be used efficiently they must be allocated to produce the quantity of a good or service where the marginal cost of the last unit produced in the market is equal to the marginal benefit. This condition will be met in a competitive market because the quantity occurs where the demand curve (which equals the marginal social benefit curve) intersects the supply curve (which equals the marginal social cost curve).
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