The first sentence:
The sentence includes a present participle. (this is true: this participle is "passing")
The participial phrase modifies the word commuters. (false! it modifies "cars")
The participial phrase is essential. No commas are needed. (correct!)
The participial phrase is passing by. (this is also correct!)
The second sentence:
The sentence includes a past participle.
(correct! it's "derived")
The participial phrase modifies the words Middle Ages. (false!!!! it modifies "Family names")
The participial phrase is essential. No commas are needed.
(correct!)
The participial phrase is derived from people's surroundings.(correct again! this is the whole participial phrase)
An encyclopaedia would be found in the d. reference section of a library.
Answer:
I think it is (B) but I am not so sure.
Explanation: