1.

Here are the following implications of the informal economy for firms that operate only in the
formal economy are the following:

 In informal economy, there is a scope of ambiguity as no rules, obligations, and responsibilities

are written down or conveyed. There is no systematic understanding and there is no outlined
timing of work and so on. Thus, compared to formal economy where everything is organized,
concrete, and disciplined since there are predefined work conditions and they are endowed with
particular job responsibilities and expectations which motivate them to stretch and achieve what
is expected out of them, informal economy is exactly the opposite where everything unclear
since they are unregulated by the institutions of society in a legal and social environment.

 Formal economy competes against informal economy which offers those the same products in
the market. Since informal economy are not regulated by different government institutions, they
can provide the same goods at lower cost because they do not pay any taxes or incur any
regulation costs. In result, the poor and some of the middle class consumers will opt to choose
buying goods from the informal economy, resulting to a decrease of customers of the formal
economy.

 Moreover, formal economy not just only compete against informal economy in terms of
products, but also in terms of workers and employment. Informal economy also needs workers,
they hire people and since they are not regulated, they can hire people with lesser requirements
needed. Unlike in formal economy where a bachelor degree is usually needed, informal
economy can hire those undergraduate great skilled workers, so it is easy to apply and get a job
in informal economy even if they know that working in informal economy means working in a
poor employment condition. This can result in for loss of skilled and talented workers for firms
that operate in formal economy.

 Firms in informal economy are unregistered but are producing or selling legal products which
implies that they are somehow dependent to the formal economy since they cannot produce or
sell legal products if there suppliers are not registered or legal. This creates a dependency on the
formal economy to preform and not the inverse.

 The informal economy has the benefit of having easy access to their market and customers since
they operates without registering unlike the formal economy which benefits from access to the
government (permissions, resources, etc.). So, formal economy has an edge to informal
economy in way that government supports, back-ups and helps firms in the formal economy
especially in crisis just like in today’s situation where there is pandemic through giving
incentives, subsidies and making policies that will help those firms especially those are really
affected to go back on track.

5. Companies can conduct a seven-part general environment study. Demographic, economic,

political/legal, and sociocultural components are among the seven. Because informal economy
enterprises present formal economy firms with dangers and opportunities, formal economy
firms can scan, monitor, forecast, and assess such threats and possibilities. One of the concerns
posed by informal economy enterprises is the cost advantage they have over formal economy
firms due to the lack of taxes and regulations. To compete against informal economy
enterprises, formal economy firms might use their political/legal analyses and implement
strategies to give consumers competitive production costs. Enterprises in the formal sector can
also use sociocultural analysis to compete with firms in the informal economy. Since informal
economy firms tend to be located in highly diverse areas of society, formal economy firms can
learn and understand the needs of those consumers and find ways to better meet those needs.