The correct answer is option 'B', Squamous epithelium.

Squamous epithelium is a type of epithelial tissue that consists of flat, scale-like cells. It is characterized by thin and flattened cells that form a continuous lining in various parts of the body. It is found in areas where diffusion or filtration is important.

Inner lining of lung alveoli:
- The lung alveoli are the tiny air sacs in the lungs where gas exchange occurs.
- The inner lining of lung alveoli is composed of a single layer of squamous epithelial cells called type I alveolar cells.
- These cells are extremely thin and flat, allowing for efficient diffusion of gases (oxygen and carbon dioxide) between the alveoli and the bloodstream.

Blood vessels:
- The inner lining of blood vessels, including arteries, veins, and capillaries, is also composed of squamous epithelium.
- This type of epithelium is called endothelium.
- Endothelial cells are flattened and form a continuous layer, providing a smooth surface for blood flow.
- They also play a role in regulating blood vessel permeability and the exchange of nutrients and waste products with surrounding tissues.

Peritoneum of body cavity:
- The peritoneum is the serous membrane that lines the abdominal cavity and covers the organs within it.
- The inner lining of the peritoneum is composed of a layer of squamous epithelial cells called mesothelium.
- Mesothelial cells are flat and form a protective barrier within the abdominal cavity.
- They secrete a small amount of fluid that helps to reduce friction between organs during movement.

In summary, squamous epithelium is the type of epithelial tissue that forms the inner lining of lung alveoli, blood vessels, and the peritoneum of the body cavity. It is characterized by thin and flattened cells that facilitate diffusion and provide a smooth surface for various physiological processes.