Correct Option: B. A shortage of the good will develop. Detailed Explanation: In a competitive market, the equilibrium price is the price at which the quantity of a good demanded by consumers equals the quantity supplied by producers. When the price of a good is set below this equilibrium price, several important economic principles come into play.

1. Understanding Demand and Supply:
2. Demand: As the price of a good decreases, consumers are generally willing to buy more of it. This is known as the law of demand.
3. Supply: Conversely, as the price decreases, producers are less willing to supply the good because it may not cover their costs or provide sufficient profit. This is known as the law of supply.
4. Effects of a Price Below Equilibrium:
5. When the price is set below the equilibrium price, the quantity demanded increases because consumers find the lower price attractive. However, at the same time, the quantity supplied decreases because producers are not incentivized to produce as much of the good at the lower price.
6. This mismatch creates a situation where the quantity demanded exceeds the quantity supplied, leading to a shortage of the good.
7. Market Dynamics:
8. In a shortage, consumers may compete for the limited supply of the good, which can lead to increased demand and pressure on prices to rise. As prices rise, the quantity supplied will eventually increase, and the quantity demanded will decrease until the market reaches a new equilibrium.

Why Other Options Are Incorrect:

• Option A: A surplus of the good will develop.
• A surplus occurs when the quantity supplied exceeds the quantity demanded. This situation arises when the price is set above the equilibrium price, not below it. Therefore, this option is incorrect.
• Option C: The quantity supplied will exceed the quantity demanded.
• This statement is true only when the price is above the equilibrium price, leading to a surplus. Since we are discussing a price below equilibrium, this option is also incorrect.
• Option D: The market will naturally reach equilibrium without any adjustments.
• While markets do tend to move towards equilibrium, a price set below equilibrium will not reach equilibrium without adjustments. In fact, the market will experience a shortage, prompting adjustments in price and quantity. Thus, this option is misleading and incorrect.

Summary of Key Points:

• A price set below equilibrium leads to increased demand and decreased supply, resulting in a shortage.
• The law of demand states that lower prices increase quantity demanded, while the law of supply states that lower prices decrease quantity supplied.
• Surpluses occur when prices are above equilibrium, and the market cannot reach equilibrium without adjustments when prices are below equilibrium.

Revision Summary:

• A price below equilibrium causes a shortage of goods.
• Increased demand and decreased supply are the key dynamics at play.
• Surpluses and equilibrium adjustments occur at prices above equilibrium.
• Understanding these concepts is crucial for analyzing market behavior.