Question:Why is the file size of my photo less than 2MP on my iPhone 7 that has a 12MP camera?

Hundreds of millions of users take great pictures with their iPhones, and have none of the problems that you see. I've never seen anything like you describe in the 4,000 or so photos I have taken, and Apple regularly runs ads with outstanding photos taken with many different iPhone models.

So the logical conclusion is that there is a problem with your phone, or less likely with your technique. Make a genius Bar appointment and demonstrate the problem to Apple; your phone may need a replacement camera. Genius Bar Reservation and Apple Support Options - Apple

It may not be the answer you are looking for, but it IS the correct answer to the question you asked.

You can't turn off compression; iPhones do not take pictures in RAW mode. But normally JPG compression should not affect the quality of an 8x10 reproduction, so there is something else going on that you haven't told us.

I don't know what "riddled with artifacts" means. I would also need to know if you mean an 8x10 printed image or displayed image. And if printed, on what kind of printer and what the resolving power of the printer is in dots per inch. And what kind of paper it was printed on. Likewise, if it was displayed, what the DPI of the screen is. And how you got it onto the device that it was displayed or printed from.

Also information about the source. Did you take the picture using digital zoom, or unzoomed? What kind of iPhone? What was the light level (bright, normal or dim)? Did you have it set to use High Efficiency or Most Compatible? (Settings/Camera/Formats)

Does this happen with all photos, or one particular photo? Or a class of photos?

There is no control over the image compression; an iPhone takes images as either HEIF or JPG depending on the setting in Settings/Camera - Formats. High Efficiency is HEIF; Most Compatible is JPG. JPG compression works on multiple levels. The first level it replaces pixels of the same color with a pixel count. This is the level for the highest level (largest file size) of image compression. If you go to higher levels of compression it combines similar colors, which reduces sharpness. However, that is not relevant for the JPG taken with the camera.

You haven't answered my questions about what you mean by "riddled with artifacts" and whether you are viewing the image on screen or printing. Without knowing what you are actually seeing I can't provide more information. However, whatever the problem is most likely it has nothing to do with JPG compression. Most of my photography is with a Nikon 5000, 12.9 megapixels, shot in RAW mode. I import the RAW images and convert them to JPG. I see no difference between the RAW and JPG when viewed on-screen or printed. The JPG is typically 4 MB, although it varies from 2 MB to 5 MB depending on the color gradients in the original. For images taken with my iPhone 7+ they don't have any visible defects when printed or viewed on a 25 inch monitor.

Note also that megapixels is one of the least important specs in a camera. It comes way behind the quality of the lens, the size of the CDS sensor, the depth of the sensor, and the image processing capabilities of the camera.

The space saving feature only affects images saved on the phone. If you sync with iCloud the full resolution image will be updated to iCloud. And if you have enough storage turning it on does nothing; it doesn't start compressing until you are low on storage.

It's generally not a good idea to use digital zoom on any camera; all it really does is crop the picture before taking it. It does this by using only part of the sensor. So if you zoom 2x that means it is only using 4 MP of your 12 MP sensor. 4x you are using less than 1 MP of your 12 MP. When you enlarge that it will appear pixelated. You are better off taking it unzoomed, then cropping afterwards.

You are confusing megapixels with megabytes. They are for the most part unrelated, or actually very distantly related.