The transaction fees will eventually be the only source of income for the miners so we need a system that will force the user to "tip the miner" but which will also allow more block space for peak periods. A 10MB limit seems reasonable, the max yearly storage space that could be required would be approximately 0.5TB. A 0.1MB min gives enough space for most transactions.
The scarce space is the "commodity" being sold in the fee market. If you increase and decrease the supply depending on your price, I doubt there will be any customers who will want to buy your product for long. Can you think of a commodity that acts this way except the commodities that have middlemen traders hoarding capacity? Are those the best examples of the kind of market we want a bitcoin fee-market to be?
This solution seems to fail on the simplest of economic model. Someone accustomed to actual financial modelling can comment better on this.
In addition, this also opens up a situation where people will be waiting and speculating on the transaction fees.
2. How many previous block should be considered to calculate average transaction fee?
One.
Isn't verification of target size limit a thing while producing blocks. How do you calculate the average transaction fee for the current block when you haven't decided the block size and hence the topmost transactions to keep in it? Or do you propose to just calculate all the fees in all the transactions in mempool?
The logic is there. I think that an immediate adjustment to the change in price would be the best...
So I assume that you haven't seen or attempted an implementation of this sort on a test net etc. That would be the best way to go i suppose.