By mentioning that the individual drops down an intellectual peg or two, I can infer that the best fit for the first blank is inferiors, as "pundits" would refer to experts in a certain field, and "rivals" does not fit the connotation of the sentence.
Next, by understanding that the author is referring to the crowd as lacking intelligence, I can omit "erudite" as this means having great intelligence. "Ascetic" means showing self-denial, thus does not fit here. The correct answer is simian because this relates to apes, which conveys the message of a lack of intelligence in crowds.
Finally, the last sentence refers to something that can incite action within a crowd. I can omit "recluses" as an option because a recluse is someone who keeps to himself. "Recidivists" does not work here because that means a repeat criminal. Demagogue is the answer because this means a political leader who can appeal to desires of regular people.