How do safety standards strike a balance between added costs and the extra benefits of safety.

We are all aware of very cheap products that can be got from online retailers that don't comply with safety standards. A lot of the time these products still work and most of the time they don't kill anyone. Adding layers of safety costs money. Ensuring a product complies with safety standards costs money. How do people developing product standards strike a balance between the added cost and the marginal improvement in safety? Is there a point of diminishing returns? Is there an acceptable level of risk (as long as it kills less than 1 person in X million it's ok ???)