I would say the 12-inch pizza for $12.50 is the better buy because of the price per inch. If you were to buy the 8-inch pizza for $7, it would be a cost of $1.14 per inch. On the other hand, for a 12-inch pizza at a cost of $12.50, the cost per inch is only $0.96. So, even though buying an 8-inch pizza for only $7 seems "dirt-cheap", it's a better value to buy a 12-inch pizza and spend a little more money for more slices and less money per inch (if that makes sense haha).
UPDATE: please disregard my answer! my math is wrong in my answer and I don't want anybody to get it wrong! :( I didn't realize that I miss calculated until after I had posted my answer! :(