economic MC

To answer this question, you should know the followings:
A change in demand ( supply ) is caused by a change in other factors except its own price.
It is represented by a shift of the entire demand ( supply ) curve.
A change in quantity demanded ( quantity supplied ) is caused by a change in its own price, holding all other factors constant.
It is represented by a movement along the same demand ( supply ) curve.
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In the above, the banks offer privileges and this will increase the demand of the customers for the services provided by them. Then the whole demand curve will shift to the right and thus the quantity demanded at every price will increase.
Hence the answer is A.

The answer by The "Einsteinette" ~ Gabriella Montez is only partly correct but you are not to blame. This is a typical BAD economics question.

The question asks about the effect on the demand/supply of bank services. What is the price of bank services so that you can plot a demand supply schedule, interest rate, handling fees, or an index of the combination of different services? Without knowing the price, there is nothing to say about demand and supply.

The question should say the effect on the demand and supply of mortgage loans instead of bank services.

Different factors cause a rise in demand and a rise in the quantity demanded of mortgage loans.

1. The interest rate is the price of borrowing. Though interest rate is reduced only for the first year and will favour those having shorter term mortgage than longer term mortgage, the effect is lower price of borrowing.

2. Free legal service is a one-time benefit and has an income effect on borrowers. One-time benefit is not a change in price because it is not affected by the quantity purchased.

3. Fire insurance is required for the whole life time of the mortgage. Insurance premium on mortgage insurance, because it is tied to the mortgage, may be regarded as part of the price of borrowing.

The answer therefor is A because the income effect increases demand and the price drop causes an increase in quantity demanded.

However, you can ask your teacher for the lost marks if your answer is B. Taken everything together, there is a general drop in the price of bank services and therefore the quantity demanded for back services increase while demand remains unchanged.

2007-10-07 15:01:52 補充：
Meteor, economics is about reasoning. Do not be afraid to tell your teacher that there is a problem with the question. Do not be a victim of the stuffed-duck education system.