I'm not down with the whole "report her to the government." The right thing to do would be to personally contact her first. I feel like some people report unlicensed bakers just to see them get in trouble.
The real crime are those prices.
She may figure the pricing problem out on her own, or maybe profit isn't her priority. (She might not need the money.) I do not charge a lot right now, because I am having fun and it's a paid hobby (hob-business!) Actually, many on this website would look at my slightly low prices in shock. I do always make back my costs and more, but never enough for the hours I put in. That is okay though, for now, because every second of making a cake is fun stress-relief for me. I am getting many calls and it's not due to my low prices, it's because people are liking my work. Eventually I will raise my prices, but for now it's about having fun, gaining a reputation (for my work) and earning just enough to cover costs.
Happily, and fortunately, I have a wealthy demographic to work with when I do raise my prices.
Jason, I'm not an undercutter. The nearest bakery that will legally do what I do (fondant, gumpaste, e.t.c) is 20 miles away and won't deliver. I'm my own little entity in a way. But like I said before, my prices will go up. Learning and getting my feet wet, maybe like the undercutter in the OP.
For cake, $3-$4.00/serving is what I generally charge, but am also going to say my work is not (yet) quite that of some on this website. Cupcakes start at $2.50. I also do not do wedding cakes.
Also, sometimes I charge too little for a new design not knowing the work that will go into it.
I definitely trust you. But...then they won't get cake, unless they pick it up at the grocery store, drive 20 miles, or make it themselves, which they don't want to do. Interestingly though, I did tell someone who wanted white chocolate roses on her cupcakes that they were "very time consuming" and she knew that would mean a much higher cost. Like I said I'm learning That's why I love CC.
People can charge whatever they want to, based on their market and costs etc etc. But that woman in the OP's situation is either going to go out of "business" soon or else she isn't running a business and is just doing this for fun. If she's illegal you can turn her in, if she's legal you're pretty much screwed until she either quits or figures out she's losing money and raises her prices. Or maybe she enjoys working for $1 an hour...
We live in Michigan, and our superstore charges more than this (which is an hour away). People are very cheap here, they think they can get a 2 layer cake to feed 100 people for $75.00 MAX. Which I have no problem sending them to people who will sell them a cake for that price. I learned along time ago it's not worth the mess or my time to make $20.
I used to feel really bad when people would go somewhere cheaper, but not anymore thanks to this site I realized my time is valuable. :)