Final answer:
The evolutionary battle between caterpillars and a parasitic wasp species to overcome each other's defenses and infections is an example of co-evolution, specifically option C. Co-evolution in the given choices.
Step-by-step explanation:
The evolutionary arms race between caterpillars and their parasitic wasps is an example of co-evolution. This process occurs when two or more species reciprocally affect each other's evolution. For example, a parasitic wasp evolves a new method of infection, and in response, the caterpillar evolves a defense mechanism to protect against the wasp's attack. As the wasp counters with another adaptation, the caterpillar must also adjust, maintaining the balance of power between predator and prey. The nature of this interaction, which is crucial to both species' survival, illustrates a symbiotic evolutionary path where each tiny advantage or adaptation by one species incites a subsequent response by the other. This phenomenon supports the Red Queen Hypothesis, which posits that species must continually adapt just to maintain their current fitness relative to the systems they are co-evolving with. In the context of the question, the correct option that represents the type of evolution exemplified by the caterpillars and the parasitic wasp species is C. Co-evolution.