My puppy(lab mix) has the same thing. I took him to the vet yesterday and the vet said it was caused by mites. He said it is very common in puppies from shelters and it should heal by itself. However, I am taking my puppy back in a week to see if there will need to be any medications prescribed.

Where did you get your puppy? 7 weeks is way to young. He should have been at least 9 weeks before he was seperated from his mother.