That's not to say I wouldn't want it either but I'm pretty privacy conscious, and a tech enthusiast. I just don't think you can say Apple is putting user's needs second, I don't imagine most users need this.
This exact same feature you are asking for would be useful for people abducting children, who could make it look like the child was still at school while they took them away.
This is far more likely to be why Apple hasn’t implemented it.
Oh and as for tracking, at least for the company they can already track you by what towers you’re connected to. So there’s no technical limitation on this being provided to apps regardless of what you might spoof.
Strava refuses to let you track your ride if you don't allow always-on background tracking. (They changed this about a year ago. Previously "while using the app" was sufficient)
A lunch menu app that I used before Covid allowed you to show nearby restaurants based on location. But there was no way to manually enter a location (without GPS it was just a huge unsorted list).
These are two examples that come to my mind (I'm not a person who uses a lot of different apps, I'm sure there's more out there. Try rejecting location access for a few apps and see what happens)
Edit: I'm also not sure why you are so hung up on geo restrictions. I don't really care about geo restrictions, and even if, you could avoid them trivially with VPNs that are widely available. That just has nothing to do with keeping my GPS coordinates private.
Many apps require location data for access to features. If you can't provide a fake location, your only choice is to either accept tracking, or not use the service.
Lots of companies use phone apps for tracking (eg. for tracking location of agents). The company will immediately realise when you turn off GPS access. If you had a way to spoof a location (eg. tell the phone to pretend you stayed in the current location), you could go to the toilet without your employers knowledge and without leaving your phone behind.
Abusers often use phone apps to track their victims. If you are in an abusive relationship, you may be too scared to turn off Find My Friends. If the phone was actually on your side, you would be able to enter a fake location, and your abuser wouldn't have to know that you visited your parents on your way home from work.
Apple wants location data from iOS users to be hard to fake, because it is more valuable this way. Apple's most important asset is the value of their ecosystem. It's why they can charge companies 30% to access it. The user's needs are secondary.