How should I deal with an angry customer that is unhappy with their physical item once they receive it in the mail?
Dealing with customers that order physical items is much more difficult than with a digital shop. Even still, I would do this just like any other customer for Physical prints. Either offer a refund, or reship the item and fix the issue, or give them a 2nd item for free. Only about 2-3% of customers complain about items. From my experience, it is even lower than that. Of all the physical items we have ever shipped, I think only 1 customer has complained. And they did not even want a refund, they just wanted to let me know they were a little disappointed. So don't let the fear of returns or angry customers discourage you. Fortunately, on Etsy this happens rarely. And when it does happen, fix the problem immediately.
How should I respond to a customer who thinks my physical items are too expensive?
It depends on if you can lower the cost of the item or not. So let's say it takes you $10 to make something, and you sell it for $100. That means, you are making $90 profit. If every customer says "It's too expensive" and you're not getting any sales, then you obviously know your item is too expensive. But let's say you sell the item all the time, and one customer complains the cost is too high, then you know your price is fine.
What if a customer is unhappy with the item's size, color
If it was their fault, I would hope they would admit it. This one is tough. Although I've never experienced this personally before. If they leave you a 1-star or 2-star review even though it was 100% their fault, then try to work something out. IF they give you a 3-star or 4-star, then I would let it be. A customer shouldn't complain about this. If anything, they should ship it back to you in an undamaged condition.