Given,
Diameter of cylindrical vessel = 7 cm
Radius of cylindrical vessel (R) = $\frac{7}{2}$ = 3.5 cm
Height of cylindrical vessel (H) = 8 cm
Diameter of base of cone = $3\frac{1}{2} = \frac{7}{2}$ cm
Radius of base of cone (r) = $\frac{7}{4}$ cm
Height of cone (h) = 8 cm
Volume of cylindrical vessel = $πR^2H = \frac{22}{7} \times (3.5)^2 \times 8$
= $22 \times 0.5 \times 3.5 \times 8$
= 308 cm3.
Volume of original cone = $\frac{1}{3}πr^2h$
= $\frac{1}{3} \times \frac{22}{7} \times \Big(\frac{7}{4}\Big)^2 \times 8$
= $\frac{1}{3} \times 22 \times \frac{1}{4} \times \frac{7}{4} \times 8$
= $\frac{308}{12}$ cm3
Volume of water required to fill the vessel = Volume of cylindrical vessel - Volume of original cone
$$\begin{aligned}= 308 - \frac{308}{12} \\[1em] = \frac{12 \times 308 - 308}{12} \\[1em] = \frac{3388}{12} \\[1em] = 282.33 \text{ cm}^3.\end{aligned}$$
Given,
Radius of new cone (r1) = 2 cm
Height of new cone (h1) = $\frac{7}{4}$ cm
Volume of new cone = $\frac{1}{3}πr_1^2h_1$
$$\begin{aligned}= \frac{1}{3} \times \frac{22}{7} \times 2^2 \times \frac{7}{4} \\[1em] = \frac{1}{3} \times 22 \times 4 \times \frac{1}{4} \\[1em] = \frac{22}{3} \text{ cm}^3\end{aligned}$$
Volume of water which comes down = Volume of original cone - Volume of new cone
= $\frac{308}{12} - \frac{22}{3}$
= $\frac{77}{3} - \frac{22}{3} = \frac{55}{3}$ cm3.
Let drop in height of water be h2 cm.
Drop in volume of water = $\frac{55}{3}$ cm3
$$\begin{aligned}\therefore πR^2h_2 = \frac{55}{3} \\[1em] \Rightarrow \frac{22}{7} \times (3.5)^2 \times h_2 = \frac{55}{3} \\[1em] \Rightarrow 22 \times 0.5 \times 3.5 \times h_2 = \frac{55}{3} \\[1em] \Rightarrow 38.5 \times h_2 = \frac{55}{3} \\[1em] \Rightarrow h_2 = \frac{55}{115.5} \\[1em] \Rightarrow h_2 = \frac{10}{21} \text{ cm}. \\[1em]\end{aligned}$$
Hence, volume of water required to fill the vessel = 282.33 cm3 and drop in level of water = $\frac{10}{21}$ cm.