16G memory or an SSD to upgrade a Macbook?
I would go with the SSD.

First you can check to see how much benefit you would get from upgrading the RAM. You can look at the Activity Monitor.app memory section. The last several versions of Mac OS X have a graph describing "Memory Pressure", which is a way of describing how hard you are pushing the RAM. The OS will naturally try to make use of ALL of the available RAM, so don't be surprised if you see that your are using it all up. What you want to note is if you have "High" memory pressure, this means that you could benefit from adding more RAM. 

Moderate Memory pressure can often be just as well addressed with upgrading to a SSD to speed up swapping to disk. Low Memory pressure will mean that there is no significant benefit to adding RAM.

There are a number of downsides to adding RAM:


You will double the amount of disk space used by swap files. 
You will double the amount of disk space used when you put the system to sleep and the RAM is stored to disk. (This is in addition to the swap space) 
You increase the time to put the system to sleep.
You will shorten the battery life, while the system is sleeping but still powering the RAM


On the SSD side, it is really all benefits. If you are RAM constrained SWAP is much faster. Everything that reads/writes to the drive will be much faster. Boot/wake times will be a fraction of the current times.

The only downside of SSD's is that when they fail, the usually fail catastrophically without warning or ability to recover. But that is why you have a backup.i

For myself, I have the same MacBookPro8,1 with an Intel i5 with a 500GB SSD and 16GB of RAM. I am a very heavy user of RAM for some of my development tasks. I would much rather be reduced on RAM than not have a SSD. Last year, I had to have the motherboard replaced and ended up using a MacBook Air with only 4GB RAM and an SSD for a week. I was actually impressed how well that MacBook Air stood up to what I threw at it even when the RAM pressure was getting fairly high, I am sure that I would not have felt the same about system with a spin disk hard drive.