The 'principle' says: if most consumers would be upset by an ingredient, then that ingredient needs to be listed on the package. That principle is in the form "If A is true, then B needs to be true". Remember from logic that if a "If A then B" statement is correct, its
contrapositive must also be logically correct. So if we negate both things and reverse the statement, to get "If B is false, then A is false", we'll arrive at a correct deduction, or in other words "If an ingredient does not need to be listed on the package, then most consumers must not be upset by it" is a correct deduction from the 'principle'. But the logical
converse is not a correct deduction. That is, if you simply negate A and B, without reversing the if/then statement, you do not necessarily arrive at something true.
Here, the 'Application' sentence states the converse: "If most consumers are not upset by an ingredient, that ingredient need not be listed". That's not a logically valid deduction from the 'principle', because there might be all kinds of other reasons an ingredient should be listed, besides consumer reaction. Answer E points out, in different language, that the Application confuses the converse with the contrapositive.
This distinction, between the converse and the contrapositive, is tested far more often on the LSAT than on the GMAT.