If you were to see a peer doing or saying something inappropriate, how would you respond?

This scenario is not your problem to fix. You can't go wrong answering this question by saying you would go up the chain of command. A hospital or group wants something like this handled a certain way, and their best assurance that this will happen (when you're involved), is to pledge yourself to that chain of command, i.e., up the ranks to department chairman, Executive Committee, administrator, etc.