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We can interpret the identity as the number of ways to form a committee of any non-zero sizes that has 1 chairman, from a group of people.

In a smaller case, suppose , i.e. there are 3 people, the LHS can be interpreted as follows:

  1. Choose a committee of size
  2. From each of the k-sized committee, choose 1 chairman from possible choices

And the RHS as follows:

  1. Choose 1 chairman from possible choices
  2. From the remaining people, choose from all the possible subsets, i.e.

In general, the LHS can be interpreted as follows:

  1. Choose a subset of size
  2. From each of the k-sized subset, choose 1 element from possible choices

And the RHS as follows:

  1. From possible choices, choose 1 element
  2. From the remaining choices, choose from all the possible subsets, i.e.

We can see that the LHS and RHS are identical, both referring to the number of possible ways to choose a subset of any non-zero sizes and choose 1 specific element inside the subset.