How do transaction volume and block reward relate? As an example, assume a block has 10 transactions with a total value of 1BTC.
Does a miner get 25 BTC for validating and committing that 1BTC? What's the economics of this model?
Yes, the miner gets 25BTC regardless of the value of the bitcoins in the block. And yes, if blocks were all that small the economics would not make sense at all, but they are not that small, they are almost always much larger. Still, 25BTC per block works out at around $10 per transaction processed at the moment. Which is still an interesting number and is presently funded by the continuing investment flowing into the Bitcoin economy.