What if in XAT Decision Making..there is a question about banning Magnus Carlsen for wearing jeans, public opinion is against FIDE, but we also have to consider Rules and topic of Favoritism if we allow him, us as manager what is most ethical or
balanced approach??

Following the rules would be the primary thing, in Magnus's case he was given the chance to play the next game if he pays the fine and changes his jeans, but at the same time the rule was not absolute regarding jeans it mentioned - "jeans is generally not allowed", so magnus didn't break any rule, so he should have been allowed to play the next game and should have been asked to not come in Jeans the next day. This would be have the appropriate solution to the issue I believe, as it satisfies all the stakeholders(i.e Magnus and FIDE). For Blitz I am not aware of everything but I think Magnus played in Jeans, which kind of put FIDE in the Backfoot, but if he wasn't allowed in Jeans then Magnus would not have played the Blitz also and might go on a full-fledged war against FIDE, harming its image alot. So coming to your question regarding ethical or balanced approach - it would depend alot on the question stem, a balanced approach would be best as nobody can win against Magnus off the board or on the board, but FIDE also needs to set an example for other players so ethics would come into picture then. TOtally depends on the question stem. This is my take.

Just saw news about him winning so I'm assuming even the FIDE found their management rules too severe. I think they've since relaxed the "jeans" rule.... would suggest reading up about what actions the FIDE took internally.