Merchant of Venice

Act 4 scene 1

why does portia keep telling Shylock to be merciful, and how does Shylock reply?

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Portia asks Antonio if he admits to owing Shylock money. When Antonio answers yes, Portia concludes that the Jew must be merciful. Shylock asks why he must show mercy, and, in one of the play’s most famous speeches, Portia responds that “[t]he quality of mercy is not strained,” but is a blessing to both those who provide and those who receive it (IV.i.179). Because mercy is an attribute of God, Portia reasons, humans approach the divine when they exercise it. Shylock brushes aside her pretty speech, however, by reiterating his demands for justice and revenge.

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http://www.sparknotes.com/shakespeare/merchant/section8.rhtml

She gives him many chances to show mercy so that when she brings down the penalty on him, he can't cry foul. She suggests that he take three times the loan, and he refuses; so, he is choosing the next step: in his mind, the pound of flesh . . . in her mind, the penalty for attempted murder. He insists on the letter of the law, and so she gives him exactly that. She succeeds in turning his own wishes against him. Clever.